[Cites 39, Cited by 0]
Bombay High Court
Thermax Ltd vs Rashtriya Chemicals And Fertilizers ... on 9 December, 2025
Author: R.I. Chagla
Bench: R.I. Chagla
2025:BHC-OS:24006
RJ-CARBP 394.2023 with IAL-23263-23.doc
Kavita S.J. & Sharayu Khot
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION PETITION NO.394 OF 2023
Thermax Limited ...Petitioner
Versus
Rashtriya Chemicals & Fertilizers Ltd., ...Respondent
WITH
INTERIM APPLICATION (L) NO. 23263 OF 2023
IN
COMMERCIAL ARBITRATION PETITION NO.394 OF 2023
----------
Mr. Janak Dwarkadas, Senior Counsel a/w Mr. Mustafa Doctor,
Senior Counsel a/w Mr. Aditya Thakkar, Mr. R. Sudhinder, Mr. Ranjit
Shetty, Mr. Rahul Dev & Ms. Monika Vyas i/b Argus Partner for the
Petitioner.
Mr. Shyam Mehta, Senior Counsel a/w Mr. Aditya Bapat, Mr. Mac. C.
Bodhanwala, Mr. Sheraj M. Bodhanwalla, Ms. Sayali Puri, Mr. Akash
Singh and Mr. Shreyas Thakur i/b M.S. Bodhanwala & Co., for the
Respondent.
----------
SHARAYU
PANDURANG
KHOT
CORAM : R.I. CHAGLA, J.
Digitally
signed by
SHARAYU
PANDURANG
RESERVED ON : 30th JUNE 2025.
KHOT
Date:
2025.12.09
17:53:03
+0530
PRONOUNCED ON : 9th DECEMBER 2025.
1
::: Uploaded on - 09/12/2025 ::: Downloaded on - 09/12/2025 20:55:45 :::
RJ-CARBP 394.2023 with IAL-23263-23.doc
JUDGMENT:
1. By this Commercial Arbitration Petition, the Petitioner
has challenged the Award dated 5 th June, 2023 ("the said/subject
Award") passed by the learned Sole Arbitrator, under Section 34 of
the Arbitration & Conciliation Act, 1996 ("the Arbitration Act").
2. The relevant facts are stated under:
(i) The Petitioner - Thermax Limited (referred to as
"Thermax") is an Indian industrial company offering
engineering, procurement and commissioning
services and sustainable solutions in Energy and
Environment domain. The Respondent - Rashtriya
Chemicals & Fertilizers Limited (referred to as
"RCF") is a commercial public sector undertaking
engaged in the manufacturing and marketing of
nitrogenous, phosphatic and potassic fertilizers as
well as a variety of industrial chemical products. For
the aforesaid manufacturing of fertilizers, among
others, electricity is one of the utility costs of RCF.
RJ-CARBP 394.2023 with IAL-23263-23.doc
(ii) RCF issued a Notice Inviting Tender ("NIT") on 19th
January, 2015 which invited eligible bidders to
submit bids for setting up of a 2X25 MW Gas
Turbine Generators ("GTGs") and 2X100 PH HRSG
along with all Balance of Plant, at RCF's factory at
Thal, Maharashtra as per detailed scope laid down
in the NIT on a Lump Sum Turnkey basis. Under
the NIT, Siemens was one of four approved vendors
(the other approved GT manufacturers being BHEL,
GE Power, Hitachi) specified by RCF. Thermax
decided to participate in the bid with Siemen's
manufactured GTGs.
(iii) Thermax was the successful bidder for the same and
RCF accordingly issued a Letter of Intent ("LOI") on
12th February and 25th February, 2016 in favour of
Thermax for award of contract for the said scope of
work.
(iv) A Statement of Agreed Variation was executed
between the parties on 26th February, 2016 whereby
RJ-CARBP 394.2023 with IAL-23263-23.doc
it was agreed that RCF would operate the plant only
after successful completion of the Performance
Guarantee Test ("PG Test").
(v) The Contract was executed between Thermax and
RCF on 3rd March, 2016 for a total Contract price of
Rs.3,53,08,99,313/- (Rupees three hundred and
fifty three crores eight lakhs ninety nine thousand
three hundred and thirteen only) out of which the
Contract price for supply of GTGs was
approximately Rs.106 Crores. The contract which
was executed between the parties stipulated inter
alia that RCF upon compliance of several conditions
by Thermax would issue a Preliminary Acceptance
Certificate ("PAC") (Clause 3(50) of GCC); 'Taking
over' shall mean RCF taking possession and use of
the Plant following issuance of PAC (Clause 3(63) of
GCC); PAC would be followed by a Defect Liability
Period of one year (Clause 17 of SCC) and post the
Defect Liability Period a Final Acceptance Certificate
would then be issued by RCF (Clause 19.1 of SCC)
RJ-CARBP 394.2023 with IAL-23263-23.doc
and Payments by RCF and Warranties by Thermax
were linked to these periods under the Contract.
(vi) As per the baseline schedule, it was RCF's obligation
to complete the Main steam line by 31 st August,
2017 and Thermax had to complete the PG Tests by
02nd December, 2017. It is pertinent to note that
RCF could not complete the main steam line by the
original timeline of 31st August, 2017, which, in
turn, delayed the PG Tests.
(vii) Thermax imported the GTGs from Siemens and
supplied the same to RCF. The executives of
Siemens were also directly involved in the erection,
installation and commissioning of the Plant.
(viii) On 28th February 2018 and 27th March 2018 the
sustained load throw off tests in respect of both
GTGs were conducted. It is pertinent to note that
from March 2018 onwards, the primary source of
power for the manufacturing activity at RCF's plant
were the 2 GTGs.
RJ-CARBP 394.2023 with IAL-23263-23.doc
(ix) RCF deducted Mutually Agreed Damages ("MAD")
amounting to Rs.19,56,85,716/- vide its Debit Note
No. LD130080123 on 30th March, 2018.
(x) The PG Tests were successfully completed for GTG-1
and GTG-2 on 24th April, 2018 and 10th May, 2018
respectively. RCF vide its email dated 10 th May,
2018 congratulated Thermax for successful
completion of the PG Test in respect of GTG-2.
(xi) Thermax informed RCF that it will de-mobilize its
manpower at the site after 11 th May 2018 vide
Email dated 10th May, 2018.
(xii) After the successful completion of PG Tests in
respect of GTG-2 and all guarantees being met, on
14th May, 2018 to 23rd May, 2018, RCF demanded
that the PG Test be re-conducted. Though according
to Thermax there was no requirement to conduct
another PG Test on the basis of the issues raised by
RCF, Thermax ultimately agreed to do a re-test.
RJ-CARBP 394.2023 with IAL-23263-23.doc
(xiii) It is Thermax's case that from the correspondences
available on record i.e. from May to September
2018, the GTGs were under unilateral control of
RCF.
(xiv) Thermax though maintaining that no fresh PG Test
was required for GTG 2, successfully conducted the
re-test for GTG 2 in October, 2018.
(xv) During the period 22nd February, 2019 to 8th March,
2019 there were multiple alarms in the control
systems of both GTGs which had been ignored by
RCF. It is Thermax's case that RCF did not inform
either Thermax or Siemens about the same.
(xvi) Since RCF was complaining about the efficiency of
GTGs having dropped, Siemens i.e. Original
Equipment Manufacturer ("OEM") was contacted
and Siemens advised RCF to immediately stop the
units and carry out internal washing of the
compressor since major amount of dirt had entered
the compressor and accumulated on the blades.
RJ-CARBP 394.2023 with IAL-23263-23.doc
(xvii) In view of RCF not immediately carrying out
Siemens instructions, Siemens sent an official letter
under cover of email dated 22 nd February, 2019
calling upon RCF to shutdown GTGs immediately
and carryout immediate internal washing of the
compressor and also after inspecting the filters to
share pictures of the same with Siemens.
(xviii) Siemens, by its e-mail dated 11th March 2019,
enquired with Thermax whether any air intake
filters had been changed by RCF.
(xix) RCF vide email dated 12th March, 2019 conveyed to
Siemens that they had not changed any air intake
filters till date.
(xx) The PAC was issued by RCF on 15th March, 2019
with effect from 7th March, 2019.
(xxi) After being operational for 11 months, GTG-2 broke
down on 20th March, 2019.
(xxii) Siemens vide email dated 21st March, 2019 at 13:27
RJ-CARBP 394.2023 with IAL-23263-23.doc
hours informed Thermax and RCF to stop the unit
(GTG 1) immediately and internally wash the
compressor of GTG-1. It is an admitted position that
RCF did not comply with these directions of
Siemens. After being operational for 11 months,
GTG - 1 broke down on 22nd March, 2019.
(xxiii) It is the contention of RCF that the breakdown had
occurred on account of the GTGs being defective
and that since the PAC had been issued only on 15 th
March, 2019, in terms of the contract, Thermax was
liable to repair the machines. RCF sought to invoke
the 'defect liability' clause under the Contract
claiming that failure of GTGs was covered by
supplier's warranty undertaking. Thermax disputed
that it was responsible for the breakdown of GTGs,
inter alia since RCF had been commercially
operating the GTGs since March 2018. This was
recorded in the emails dated 13 th May, 2019 and
18th May, 2019 exchanged between RCF and
Thermax.
RJ-CARBP 394.2023 with IAL-23263-23.doc
(xxiv) Between May and June 2019 discussions ensued
between the Parties to determine the exact quantum
and value of repair and the time period required for
the repair and restoration. Thermax vide email
dated 24th May, 2019 submitted a proposal to
Siemens setting a way forward for repair and
restoration of the GTGs under which liability for
cost of repairs was contemplated to be apportioned
between the parties based upon the findings of the
Final Root Cause Analysis Report which was to be
conducted by Siemens.
(xxv) Siemens submitted the Final Root Cause Analysis
Report ("Final RCA") on 24th June, 2019 inter alia
stating that the root cause of the compressor
damage was the fouling of the compressors i.e. dirt
was accumulated on the blades of the compressor.
As per Final RCA, the filters let a significant amount
of dirt enter the compressors causing the
compressor to become significantly dirty. The reason
was that the filters were not replaced on time. It
RJ-CARBP 394.2023 with IAL-23263-23.doc
was also observed that if a compressor wash had
been performed, it was likely that the compressor
damage would have never occurred.
(xxvi) An agreement titled 'Notice to Proceed' was entered
into between Thermax and RCF on 2nd July, 2019.
This Agreement specified, inter alia, the manner in
which the repairs would be conducted and also
provided that the Notice to Proceed was the final
expression and a complete understanding between
the parties with respect to the warranty claim of
repair and restoration of GTGs.
(xxvii) RCF ordered a new Gas Generator (GG) from
Siemens directly on 6th July, 2019, in order to
restart GTG-2. The GTG-2 was thus made
operational from August 2019.
(xxviii) RCF invoked arbitration on 5 th November, 2019
claiming inter alia, that - the GTGs that had been
supplied were defective and hence, Thermax was
liable to repair the machines at its cost. RCF has
RJ-CARBP 394.2023 with IAL-23263-23.doc
claimed damages under several heads including a
claim of Rs.173.72 Crores for loss allegedly suffered
on account of additional expenditure on power for
the period 1st April 2019 to 30th November 2020 on
account of non-availability of the GTGs. This was on
the premise that since the PAC was issued on 15 th
March, 2019 with effect from 7 th March 2019, all
defaults prior thereto would be at the sole
responsibility of Thermax.
(xxix) In the arbitration proceedings, Thermax preferred a
Counter Claim for refund of MAD deducted by RCF
to the tune of Rs.19,56,85,716/-; for charges on
delayed release of bank guarantee (bank charges
amounting to Rs.7,06,000/-) furnished by Thermax;
for compensation and additional costs amounting to
Rs.2.15 crores incurred for the period during which
RCF was operating the plant without "Taking Over"
the plant as per the Contract; for refund of 2%
retention money withheld by RCF which was
payable at the time of final bill; and for release of
RJ-CARBP 394.2023 with IAL-23263-23.doc
fresh bank guarantee furnished by Thermax
amounting to 5% of the contract value.
(xxx) The learned Arbitrator framed a total of 16 issues.
The challenge to the impugned Award is on Issue
Nos. 1, 2 and 3 which deal with the issue of defect
in the GTGs supplied and who is responsible for
repairs and rectification of GTGs after breakdown;
Issue No.4 which deals with the issue of additional
expenditure on power awarded as damages; and
Issue No.10 which deals with the refund of MAD.
3. Mr. Janak Dwarkadas, learned Senior Counsel
appearing for the Petitioner has submitted that there was no defect in
the GTGs which had been supplied by Thermax to RCF. He has
submitted that the reason for breakdown of the GTGs was on account
of faulty handling of the GTGs by RCF. He has submitted that
Thermax has placed on record several correspondence exchanged
between Siemens, Thermax and RCF between February 2019 till the
ultimate breakdown of the GTGs i.e. 20 th March 2019 and 22nd March
2019 respectively.
RJ-CARBP 394.2023 with IAL-23263-23.doc
4. Mr. Dwarkadas has submitted that the Final RCA
Report prepared by Siemens has opined that the cause for the
breakdown of GTGs was faulty operation and failure on the part of
RCF to comply with the O&M Manual, inter alia as it had ignored
the air intake filter alarms which numbered 269 for GTG 1 and 52 for
GTG-2. The Final RCA Report has also found that there was a failure
on the part of RCF to inspect air intake for combustion air on a
monthly basis, failed to evaluate the performance of the
compressor on a weekly basis, failed to adhere to the express
instructions of Siemens etc.
5. Mr. Dwarkadas has submitted that RCF in its Reply to
Thermax's Counter Claim had for the first time referred to the
Report dated 1st September 2019 of Shakti (as an expert) to
contend that the cause for breakdown of the GTGs was the
Rubbing Theory. As per Rubbing Theory, there were heavy rubs on
the compressor metal blades and casings which would have induced
high fatigue in the metal blades thereby causing cracks in some of
the blades. Over a period, these cracks propagated causing the metal
blades to fail and break. The Shakti Report has sought to rely upon a
Report of Metallurgical Report namely TCR Advanced Engineering
RJ-CARBP 394.2023 with IAL-23263-23.doc
Private Limited, Vadodara considering that this was metal blades. He
has submitted that though the author of the Shakti Report was
produced for cross examination, RCF failed to produce the author of
the Metallurgical Report for cross examination. He has submitted
that in view thereof, the Shakti Report is based on hearsay evidence
and remained 'not proved'. He has submitted that this being the
only evidence that RCF produced in order to discharge the burden of
proving Issue No. 1 viz. Whether the GTGs supplied to the Claimant
were defective in nature, which evidence could not be tested by cross
examination, it becomes entirely worthless.
6. Mr. Dwarkadas has submitted that Thermax at the
stage of oral as well as written submissions, objected to the evidence
of one Mr. Sudhakar Jammula (CW-3), Director of Shakti, who was
a co-author of Shakti Report being taken into consideration on the
ground that the Report is based almost entirely on a Metallurgical
Report prepared by some other agency, the author of which never
entered the box for cross examination. He has submitted that on this
objection being raised in the course of oral arguments, the Counsel on
behalf of RCF abandoned relying upon the Shakti Report. He has
placed reliance upon Paragraphs 5.8 to 5.12 of Synopsis of Written
RJ-CARBP 394.2023 with IAL-23263-23.doc
Submission filed on behalf of Thermax.
7. Mr. Dwarkadas has submitted that the learned
Arbitrator has not rendered any finding on whether the Shakti Report
has been proved by RCF. He has submitted that it is trite law that
principles of the Evidence Act apply to arbitral proceedings. Further, it
is a trite law that no materials can be relied upon to establish a
contested fact which are not spoken to by persons who are competent
to speak about them and are subjected to cross-examination by the
party against whom they are sought to be used. The learned
Arbitrator, without giving any ruling/finding on the proof and veracity
of Shakti Report has proceeded on a completely alternate basis by
observing in Paragraph 49 that "Even if we proceed entirely on the
basis of the RCAs of Siemens and RINA report, there were defects in
GTGs installed by the Respondent and supplied by Siemens..."
8. Mr. Dwarkadas has submitted that the learned
Arbitrator in so finding failed to take into account the contrary
evidence led in by Thermax in the form of Final RCA and RINA Report
wherein the experts had categorically stated there is no evidence in
support of the conclusion that rubbing between the blades and the
RJ-CARBP 394.2023 with IAL-23263-23.doc
casing caused initiation of cracks.
9. Mr. Dwarkadas has referred to the evidence of Michael
Wood (RW-3) who has commented on the Shakti Report and disputed
its contents and opined it as unreliable. He has submitted that RW-3
was extensively cross examined by RCF with regard to aforesaid
conclusion reached by him and this conclusion remains unshaken.
10. Mr. Dwarkadas has submitted that Issue No.1 ought to
have been decided against RCF, as it had failed to prove the Expert's
Report and / or abandoned the same. He has submitted that if Issue
No. 1 were to be decided against RCF, Issue Nos. 2 and 3 would also
have to be decided in the negative. Issue No.2 being "Whether the
breakdown of the GTGs is covered under the defect liability and
warranty clauses of the contract?" and Issue No.3 "Whether the
Claimant is entitled to a declaration that the entire cost of repair and
rectification of the GTGs is to be borne by the Respondent?".
11. Mr. Dwarkadas has submitted that the learned
Arbitrator has relied upon an admission in the Final RCA by Siemens
that the Compressor Malfunction Alarm was 'configured incorrectly'
and therefore it did not raise the required alarm. The learned
RJ-CARBP 394.2023 with IAL-23263-23.doc
Arbitrator has further held that in view of the incorrect configuration
of the Compressor Malfunction Alarm, the recommendation made in
the Final RCA for more frequent washing of the dirt from the
compressor blades to prevent the breakdown of GTGs could not be
accepted.
12. Mr. Dwarkadas has submitted that the learned
Arbitrator has in rendering the above findings, overlooked and not
considered the most material admitted facts and evidence available
on the record. He has submitted that the admitted/uncontroverted
evidence on record was that air intake filters were the first line of
defence to protect the compressor from any dirt; the function or
purpose of the filters was to prevent the dirt to pass through and
settle on the compressor blades; the Filter Operation and
Maintenance manual (O&M) requires a periodic checking of the
filters; there were separate and independent alarms system called the
'Deviation Air Intake Filter Differential Pressure' and 'DP Air Intake
Filter' ("Filter Alarms"); and the O&M manual provided for a fault
procedure for the actions to be taken inter alia in the event of the
Filter Alarms going off, which has also been extracted in the Final
RCA.
RJ-CARBP 394.2023 with IAL-23263-23.doc
13. Mr. Dwarkadas has submitted that admittedly, between
20th February, 2019 to 22nd March, 2019, when the GTGs broke down,
there were 269 Filter Alarms triggered for GTG -1 and 52 Filter
Alarms triggered for GTG 2. He has placed reliance upon Appendix 1
and 2 of Siemens Final RCA in this context. He has submitted that
the correspondence shows that though Siemens had specifically
requested RCF to inspect the filters and send photos of the same, RCF
never provided any pictures to Thermax/Siemens.
14. Mr. Dwarkadas has submitted that RCF had admitted
that they had not changed any air intake filters till date. Despite
numerous repeated warnings from the Filter Alarms which were
admittedly noticed by RCF, RCF did not either report this to
Thermax/Siemens nor took any action as per the O&M manual to
change the filters and merely gave a perfunctory explanation for not
changing the filters as per the O&M manual.
15. Mr. Dwarkadas has submitted that it is evident from
the Final RCA that real cause for accumulation of dirt on blades of
compressor was that the filters were not changed in time. The
conclusion from the Final RCA is that breakdown could have been
RJ-CARBP 394.2023 with IAL-23263-23.doc
avoided by washing the dirt on the compressor blades in time.
16. Mr. Dwarkadas has submitted that the finding of the
learned Arbitrator, in Paragraph 39 of the Impugned Award, to the
effect that the compressor malfunction alarm being configured
incorrectly did not put RCF to notice of the accumulation of the dirt
on the compressor blades is only a secondary fact in as much as it
completely fails to consider and overlooks the fact that air intake filter
alarms are the primary alert mechanism to indicate the problem in
filtration and the condition of the filters. These alarms admittedly
were triggered on multiple occasions.
17. Mr. Dwarkadas has placed reliance upon the evidence
of Roger Ahlin (RW-2), Product Owner of SGT-700 at Siemens Energy
AB, Sweden who had the overall responsibility for the GTGs during
their entire lifecycle. He was also a member of the review team for the
RCA which finally approved the Final RCA.
18. Mr. Dwarkadas has submitted that the evidence of
Roger Ahlin (RW-2) remains unimpeached/unchallenged. The learned
Arbitrator has not even adverted to the said evidence, although, it has
been the case of Thermax, that the Filter Alarms being the primary
RJ-CARBP 394.2023 with IAL-23263-23.doc
alert mechanism to indicate the problem in filtration and the
condition of the filters, RCF had not taken requisite steps, either for
preventive maintenance or remedial action.
19. Mr. Dwarkadas has submitted that RW-2 has given
evidence that under the O&M manual, RCF was required to
periodically inspect the filters as well as monitor the compressor
efficiency. According to RW-2, the reason for the breakdown of the
GTGs was the failure on part of RCF to abide by the requirements of
O&M manual.
20. Mr. Dwarkadas has submitted that it is apparent from
the evidence on record that RCF's case is that the frequency with
which the air intake filter alarms went off were for short durations
and was activated only for a few seconds after which it got
normalized, no action was warranted. This is evident from the extract
of the Evidence Affidavit of R.P. Jawale (CW-1). Accordingly, the
learned Arbitrator was required to evaluate the evidence led by
witnesses of RCF as well as Thermax and come to a conclusion that
which of the two was believable/acceptable with reasons thereof. He
has submitted that what the learned Arbitrator has done instead is to
RJ-CARBP 394.2023 with IAL-23263-23.doc
jettison the evidence led by RCF's witness as well as evidence led by
the expert witness of Thermax and arrive at a perverse conclusion
that on a reading of Clause 14.1 of the Contract, it was the duty of
Thermax to have inspected the atmospheric conditions at the site
prior to supply of GTGs.
21. Mr. Dwarkadas has submitted that it was incumbent
upon the learned Arbitrator to have examined/evaluated the evidence
on the Filter Alarms and the conduct of RCF and give a finding
thereon before deciding on the aspect of Compressor Malfunction
Alarm.
22. Mr. Dwarkadas has submitted that although Thermax
had placed the above facts in its Written Submissions (filed prior to
final hearing) as well as Synopsis of Submissions (filed after final
hearing) before the learned Arbitrator, the Learned Arbitrator has not
considered the submissions and rendered no finding in respect
thereof.
23. Mr. Dwarkadas has submitted that the findings of the
learned Arbitrator on (i) filters of requisite capacity were not installed
- which defect had a direct connection with breakdown of the
RJ-CARBP 394.2023 with IAL-23263-23.doc
compressor and, (ii) compressor malfunction alarm was configured
incorrectly and hence, RCF cannot be blamed for not washing the
compressor; are perverse and patently illegal.
24. Mr. Dwarkadas has submitted that instead of holding
that the evidence on record could lead to one and only one conclusion
namely, that the breakdown occurred on account of RCF's failure to
maintain and operate the GTGs as required by the O&M manual, the
learned Arbitrator has held Thermax liable for the breakdown on a
simplistic finding based on a provision in the contract, i.e. definition
of 'Taking over' under Clause 3(63) of General Conditions of Contract
("GCC") by holding that since the PAC was issued on 15 th March,
2019 w.e.f 7th March 2019, Thermax was responsible for all acts prior
thereto. He has submitted that the entire record before the learned
Arbitrator has been ignored/overlooked.
25. Mr. Dwarkadas has submitted that Thermax, relying on
the evidence on record, had contended before the learned Arbitrator
that the Contract as understood and as performed by parties led to
only one interpretation viz. RCF had taken over the plant and was
responsible for the breakdown. It was submitted before the learned
RJ-CARBP 394.2023 with IAL-23263-23.doc
Arbitrator that RCF by its conduct did not wait for PAC for taking over
the Plant and rendered the provision qua issuance of a PAC
completely irrelevant, otiose and redundant. He has relied upon
Paragraph 4.10 to 4.16 of the Synopsis of Submissions in this context.
26. Mr. Dwarkadas has submitted that the learned
Arbitrator without considering the effect of these
contentions/arguments and the incontrovertible evidence on record,
negates their relevance by merely relying on the Contract and holding
in Paragraph 34 of the Award that " it is not necessary to go into the
details of the emails exchanged between the parties when the terms
of the contract are clear and responsibility of the Respondent
continues till the issuance of PAC (Preliminary Acceptance Certificate)
...".
27. Mr. Dwarkadas has submitted that this finding of the
learned Arbitrator is completely circuitous, perverse and patently
illegal in as much as the learned Arbitrator had completely
disregarded the entire evidence on record regarding the actual facts
and commercial realities in the performance of the Contract.
RJ-CARBP 394.2023 with IAL-23263-23.doc
28. Mr. Dwarkadas has placed reliance upon the relevant
clauses of the GCC. He has relied upon Clause 8 of the GCC which
provides that commercial use shall mean that use of the Plant, which
the contract contemplates or of which it is commercially capable. He
has placed reliance upon Clause 21 of the GCC which provides that
such matter shall not be a defect if it is caused by inter alia a failure
by the Purchaser to operate and maintain the Plant in accordance
with any operating and maintenance manuals provided by the
Contractor and/or with good engineering practice. He has placed
reliance upon Clause 22 of the GCC which is Defect Liability Period
and which shall mean a period of 12 months commencing from the
date of Preliminary Acceptance. He has placed reliance upon
"Preliminary Acceptance" and "Preliminary Acceptance Certificate"
under Clause 50 and 51 of the GCC. He has also relied upon Clause
63 of the GCC which is 'Take Over' 'Taking Over' and 'Taken Over'
which shall mean owner taking possession of and use of the Plant
following issue of the PAC.
29. Mr. Dwarkadas has also placed reliance upon Clause 17
of the Special Conditions of Contract ("SCC") which provides for
Liability for Defects.
RJ-CARBP 394.2023 with IAL-23263-23.doc
30. Mr. Dwarkadas has submitted that since RCF had
started operating the Plant and was commercially using the GTGs, the
issue of inadequate maintenance leading to breakdown would be the
responsibility of RCF. He has submitted that in light of the factual
position including the admitted and uncontroverted fact that RCF had
put the GTGs to commercial use for over a year, the Contract would
have to be interpreted in a manner so as to make the Contract
commercially efficacious. To put it differently, a party who had used
and operated the GTGs as its primary source of power and gained
commercial benefit therefrom could not be allowed to take advantage
of its own wrong in not issuing a PAC and thereby contend that
responsibility until PAC is with Thermax. He has submitted that
alternatively, RCF wrongly delayed the issuance of PAC. The fact that
RCF took over operational control of the Plant post commissioning
and started using it for commercial purposes from March/April 2018
makes the requirement of issuing PAC under the Contract as
redundant/otiose.
31. Mr. Dwarkadas has submitted that the admitted
documents and correspondence between the parties establish that
RCF was in full control and operating the GTGs (atleast) from April
RJ-CARBP 394.2023 with IAL-23263-23.doc
2018 onwards. He has placed reliance upon the e-mails exchanged
between parties from 12th April, 2018 till 24th February, 2019 in this
context.
32. Mr. Dwarkadas has submitted that the correspondence
shows that RCF had made a warranty claim in December, 2018
indicating that it had taken over the GTGs. By Letters dated 30 th
November 2018, 15th February, 2019 and 7th March 2019, Thermax
repeatedly called upon RCF to issue PAC. He has also placed reliance
upon the pre-arbitration correspondence between the parties
including the letter dated 18th May, 2019 of RCF stating that they had
followed instructions of Siemens and the Operating and Maintenance
manual thereby admitting that RCF was solely operating the GTGs in
the month of February 2019, i.e. prior to issuance of PAC. Thermax in
its Letter dated 18th May, 2019 informed RCF that the GTGs were in
commercial operation since February/March 2018 and had clocked
7644 and 7827 operating hours prior to breakdown during which the
units were solely operated by RCF. Further, in its annual report for
the financial year 2018-19, RCF had made a categorical statement
that the GTGs have been commissioned and had resulted in energy
savings to RCF. RCF had also claimed depreciation in respect of GTGs
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for the financial year 2018-19 commencing on 1st April 2018.
33. Mr. Dwarkadas has submitted that for the first time in
the Reply to Counter Claim, RCF contended that till the issuance of
PAC, the GTGs were under the control and supervision of Thermax.
He has submitted that however, in the Rejoinder Note of Written
Submission, RCF admitted that "it was not disputing the position that
it had put the plant to commercial use with effect from March/April
2018". He has submitted that RCF, at the stage of Rejoinder
arguments changed its tune and abandoned its case that it was not
using the plant for commercial operations from March/April 2018 and
suddenly purported to contend that "...the question whether and
when RCF took over the plant from Thermax will have to be
determined on the basis of the terms and conditions of the
contract..."
34. Mr. Dwarkadas has submitted that Thermax in its
Statement of Defence ("SoD") and the Evidence in Chief established
the fact that RCF was in physical control of the Plant since
March/April 2018. RCF had in the Statement of Claim at Paragraphs
34 and 39 of SoC, positively asserted that the machines were operated
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by trained personnel of RCF after taking thorough training from
Siemens in accordance with the operation and maintenance ("O&M")
manual provided by Thermax and also in line with good engineering
practice.
35. Mr. Dwarkadas has submitted that the learned
Arbitrator has disregarded the evidence led by Thermax i.e. of Mr.
Sunil Raina (RW-1), Head - Strategic Business Unit (Power Division)
to establish that RCF, in fact, had taken over operations of the GTGs in
March/April 2018 by deploying their own O&M crew and was
thereafter using the same for its commercial operations. RW-1 has
deposed that even after using the GTGs for more than 7000 hours,
RCF grossly delayed in issuance of PAC by raising minor punch points
which were irrelevant to the issuance of PAC.
36. Mr. Dwarkadas has submitted that upon reading of the
cross examination of RW-1, it would be apparent that RCF has been
unable to establish that operations and control of the plant was with
Thermax till issuance of PAC. He has in this context relied upon Q&A
Nos.1, 2, 42, 46, 50, 76, 108.
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37. Mr. Dwarkadas has submitted that it is an admitted fact
that commissioning of GTG 1 was completed on 28th February 2018
and commissioning of GTG 2 was completed 27 th March 2018. RCF
had put the plant to commercial use immediately after commissioning
with effect from March/April 2018. Under the Statement of Agreed
Variations of Contract, RCF was not allowed to start commercially
operating the GTGs prior to PG Test, however, RCF admittedly did
start using the GTGs immediately post commissioning of plant.
Manufacturing activity of the plant for the period March 2018 to
March 2019 was primarily done from the power generated by the two
GTGs. Both GTGs were operated for more than 7000 hours till the
date of breakdown and generated a total 3,27,152 MWH of power i.e.
90% of the power requirement.
38. Mr. Dwarkadas has submitted that on its own showing,
RCF derived huge commercial benefit by the use of the GTGs in terms
of cost of power saving from use of GTGs and Urea Policy incentive
received from the Government of India, as is evident on a simple
calculation from the documents produced by RCF itself.
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39. Mr. Dwarkadas has submitted that RCF by its actions in
taking over and using the Plant prior to issue of the PAC has clearly
chosen to give a go by to the Clause 3(63) read with Clause 3(50) of
GCC relating to 'Take Over' and 'PAC' and they became completely
irrelevant, redundant and otiose. He has submitted that RCF cannot
take advantage of its own wrong by breaching terms of the Contract
at the first place by using the Plant for its commercial purposes and
then hold Thermax strictly to the contractual provisions.
40. Mr. Dwarkadas has submitted that RCF had claimed a
loss aggregating to an amount of Rs.173.72 Crores on account of
additional expenditure incurred towards the cost of power due to non
- availability of GTGs for the period 1st April, 2019 to 30th November,
2020. It is claimed by RCF that total cost of the power incurred during
the said period, i.e. by (i) importing power through the State MSEB
grid; (ii) generation of power from Turbo Generators and (iii) cost of
power generated from one of the GTGs (which became operational on
or about 12th August, 2019) after RCF directly purchased a Gas
Generator from Siemens. From this aggregate amount, RCF has
reduced the notional cost of power that it would have incurred on the
basis that the GTGs continued to remain operational and supplied
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100% of RCF's power requirements for its plant at Thal for the period
1st April, 2019 to 30th November, 2020.
41. Mr. Dwarkadas has submitted that the impugned
Award, has awarded damages amounting to Rs.173.72 Crores in
relation to alleged additional expenditure incurred by RCF by
importing power from MSEB and from Turbo Generator for the period
1st April, 2019 to 30th November, 2020.
42. Mr. Dwarkadas has submitted that the claim for
damages could not have been granted as the claim was beyond the
contract and contrary to the contractual bargain; the claim was
beyond the scope of agreement titled as "Notice to Proceed" dated 2 nd
July, 2019 entered into between Thermax and RCF in relation to
repairs and reinstatement of GTGs; and RCF failed to lead adequate
evidence to prove the claim for damages.
43. Mr. Dwarkadas has submitted that RCF's claim for
damages is a claim for consequential loss. Being a claim for
consequential loss - award of damages to that extent is patently
illegal. He has relied upon Clause 32 of the GCC and in particular
Clause 32.2 thereof which provides "Notwithstanding anything
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contained elsewhere in CONTRACT or implied to the contrary:
(a) CONTRACTOR shall, in no circumstances, be liable
in respect of any indirect or consequential loss or
loss of profit suffered by OWNER in connection with
or arising out of performance of WORK under
CONTRACT.
(b) OWNER shall, in no circumstances, be liable in
respect of any indirect or consequential loss or loss
of profit suffered by CONTRACTOR in connection
with or arising out of performance of WORK by
CONTRACTOR under the CONTRACT."
44. Mr. Dwarkadas has submitted that the contract
specifically excludes any liability for consequential loss and Clause
32.0 states that the Contractor shall not be liable for any indirect loss
or loss of profits suffered by the Owner. He has placed reliance upon
Thermax's contention in Paragraph 84(a)(iv) of its Statement of
Defence to this effect.
45. Mr. Dwarkadas has submitted that it is RCF's
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contention that the claims are direct losses arising from the breaches
committed by Thermax of the terms of said contract and therefore the
provisions of Clause 32(a) does not apply to these losses suffered by
the RCF. This is evident from Paragraph 6 of Reply to Statement of
Defence / Counter Claim.
46. Mr. Dwarkadas has submitted that it was the
submission of Thermax in its Written Submissions before the learned
Arbitrator that from the provision of Clause 32(2)(a), it was clear that
the claims in question being barred by the terms of the contract would
fall outside and beyond the scope of the jurisdiction of the Hon'ble
Tribunal and therefore are ex-facie liable to be rejected. He has
submitted that RCF did not deal with the aforesaid submission made
by Thermax in its written submissions. However, during the course of
arguments, it was argued that the claim for damages was on account
of a direct loss incurred by RCF and hence, beyond the scope of
exclusion under Clause 32.2(a) of the GCC.
47. Mr. Dwarkadas has referred to Paragraphs 64, 65, 70
and 75 (last four lines) and 76 of the impugned Award. He has
submitted that the learned Arbitrator has accepted the claim of the
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Claimant for loss amounting to Rs.173.72 Crores by holding that the
loss is neither indirect nor consequential but a direct loss and hence,
Clause 32.2(a) has no application.
48. Mr. Dwarkadas has submitted that the learned
Arbitrator in considering whether the claim for consequential loss
made by RCF came within the exclusion clause set out in Clause
32.2(a) of the GCC was required to apply her mind firstly to the
provisions of Section 73 of the Contract Act; secondly to what is
excluded from being claimed as compensation for loss or damage
claimed from the provisions of Section 73 of the Contract Act; and
thirdly, in the light of the interpretation of Section 73 of the Contract
Act consider the width and ambit of the exclusionary Clause 32.2(a)
of the GCC. He has submitted that from the plain reading of Section
73 of the Contract Act, what is apparent is - that when a contract is
broken, a party who suffers by the breach is entitled to receive
"compensation for any loss or damage caused to him, which naturally
arose during the usual course of things from such breach, or which
the parties knew, when they made the contract, was likely to result
from the breach of it." Section 73 of the Contract Act, however,
provides that compensation cannot be given for any remote or
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indirect loss or damage sustained by reason of the breach.
49. Mr. Dwarkadas has submitted that the learned
Arbitrator had not reached the conclusion that the exclusion Clause
32.2(a) of GCC falls within the realm of 'remoteness' and 'indirect
loss' or 'damage' provided for by second part of Section 73 of the
Contract Act. In other words, the learned Arbitrator has not held the
exclusion clause to be void or as being unenforceable being contrary
to the second part of Section 73 of the Contract Act. This was also
not the case of RCF.
50. Mr. Dwarkadas has submitted that the learned
Arbitrator therefore proceeded on the assumption that Clause 32.2(a)
of GCC is a valid and enforceable exclusion clause. He has submitted
that the question therefore immediately arises is and which ought to
have been answered by the learned Arbitrator is what is it that the
parties agreed to exclude by virtue of Clause 32.2(a) of GCC.
51. Mr. Dwarkadas has submitted that the word "damage"
is defined in the Collins New English Dictionary to mean: " any injury
or harm to person, property or reputation....legal compensation paid
to injured party". He has submitted that the word "loss" is defined in
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Collins New English Dictionary to mean: "the act of losing". By
definition, the words 'loss' and 'damage' are not synonyms and/or do
not have the same meaning. It is for this reason that Section 73 of the
Contract Act provides for right of a party who suffers by breach from
party who has broken the contract "compensation for loss or damage"
caused.
52. Mr. Dwarkadas has submitted that Section 73 permits
for claims for compensation which could fall either within the normal
measure of damages as also from consequential losses so long as it is
established that they normally arise in the usual course of things or
which parties knew was likely result from breach of it.
53. Mr. Dwarkadas has submitted that Clause 32.2(a) of
GCC when it provides that the Contractor (Thermax) shall, in no
circumstances, be liable in respect of any 'indirect' or 'consequential
loss' or 'loss of profit' was meant to exclude the claim for
consequential loss, which would otherwise be claimable under
Section 73 of the Contract Act. The word 'indirect' appearing in
Clause 32.2(a) does not mean the same as 'remote' and 'indirect'
appearing in the latter part of Section 73 of the Contract Act. In any
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event, the word 'indirect' appearing in Clause 32.2(a) of GCC is
distinct from the words 'consequential loss' appearing in Clause
32.2(a).
54. Mr. Dwarkadas has submitted that it is trite law that
Indian Courts have repeatedly enforced exclusion clauses under a
contract. He has placed reliance upon following Judgments:
(i) Seth Thawardas Pherumal v. Union of India, AIR
1955 SC 468
(ii) Oil and Natural Gas Corporation v. WIG Brothers
Builders and Engineers Private Limited (2010) 13
SCC 377 at Paragraphs 6 and 7
(iii) Ramnath International Construction (P) Ltd. v.
Union of India (2007) 2 SCC 453
(iv) Steel Authority of India v. J.C. Budharaja
Government and Mining Company (1999) 8 SCC
55. Mr. Dwarkadas has also placed reliance upon the
Judgment of the Supreme Court in Superintendent Company of India
v. Krishan Murgai 1 at Paragraphs 25 and 26. He has submitted that
the question therefore which the learned Arbitrator was required to
1 (1981) 2 SCC 246
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decide was the question as to what the normal measure of damages
is as contrasted with any indirect or consequential loss or loss of
profits suffered by RCF.
56. Mr. Dwarkadas has submitted that it is too well settled
a proposition of law is what can be claimed under the heading
normal measure is either the diminution in the value of the goods or
the reasonable cost of repair which may arise on account of any
breach. He has placed reliance upon Pages 1143-1144 of Mcgregor
on Law of Damages (21st Edition). He has also submitted that the
expression consequential loss has been judicially interpreted to mean
and include expenses which may be incurred by a claimant as a result
of a breach which will constitute a recoverable loss. He has referred
Pages 1143-1144 of Mcgregor on Law of Damages (21 st Edition). He
has submitted that given this distinction which exists in the eyes of
law, the parties consciously incorporated Clause 32.2(a) in the
Contract by which RCF clearly waived its right to hold Thermax liable
in respect of any 'indirect' or 'consequential loss' suffered by RCF in
connection with or arising out of performance of work under the
contract.
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57. Mr. Dwarkadas has submitted that the reliance placed
by the learned Arbitrator on Saint Line Limited v. Richordson
Westgarth & Co. Ltd.2 is completely misplaced in as much as this
decision deals with different set of facts and in any event cannot be
applied in the context of statutory provisions contained in Section 73
of the Contract Act. This Judgment is a Judgment under the heading
loss of user profits which comes under the topic of consequential loss
and not under the normal measure of damages. The ratio of the
decision is that what the clause sought to exclude in that case was
something which by the provisions of Section 73 of the Contract Act
already stands excluded under the Indian law.
58. Mr. Dwarkadas has submitted that the claim for
damages was beyond the scope of agreement titled as "Notice to
Proceed" dated 2nd July, 2019 ("NTP") entered into between the
parties. The NTP was prior to the repairs of the GTGs being
undertaken and prior to an investigation by Siemens with respect to
the cause of the breakdown of the GTGs.
59. Mr. Dwarkadas has submitted that the learned
Arbitrator has in the teeth of Clause 5 of the NTP which provides that
2 [1940] 2 K.B. 99
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it is intended to be a complete understanding of the parties with
respect to the warranty claim and repair and restoration of GTGs, has
held that NTP has no connection with claims not connected with
repairs and recommissioning of the GTGs which RCF may have for
breach of any terms of the original contract. The learned Arbitrator
rejected Thermax's claim that RCF's claim for damages was therefore
barred by the terms of NTP. He has submitted that it is clear from the
findings in this regard in the impugned Award that the same are ex
facie contrary to the plain language of NTP and are based on an
impossible interpretation thereof. He has in this context referred to
the relevant findings in the Award on this aspect at Paragraphs 59 to
63 of the impugned Award.
60. Mr. Dwarkadas has submitted that the learned
Arbitrator has failed to consider the implications of Force Majeure
event (COVID 19) from March 2020 and two Force Majeure Letters
dated 23rd March, 2020 and 11th July, 2020 and wrongfully granted
damages for the period April 2019 to November 2020. The learned
Arbitrator has not even referred to let alone give any findings on the
impact of the force majeure event on the ability of Thermax to carry
out the repairs of the GTGs within the period prescribed under the
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NTP. He has submitted that given the fact that the parties had agreed
upon a reasonable period for completing the repairs and given the
facts and circumstances in which the delay occurred on account of
Force Majeure events, Thermax could not have been made liable for
any damages in this regard. The learned Arbitrator has completely
failed to deal with this submission in its entirety.
61. Mr. Dwarkadas has submitted that RCF has failed to
lead adequate evidence to prove the claim for damages. RCF has
relied upon Chartered Accountant's Certificate dated 20 th February,
2020 in support of its claim which is annexed at Annexure-23 to its
original (unamended) Statement of Claim. This Chartered
Accountant's Certificate was not produced on the evidence by RCF.
62. Mr. Dwarkadas has submitted that though the original
claim for loss aggregated to an amount of Rs.113.70 Crores upto 31 st
December 2019, this was revised cumulatively to Rs.173.72 crores to
claim loss towards additional expenditure of power for additional
period from 1st January, 2020 to 30th November, 2020. In the
amended Statement of Claim, RCF has relied upon the Certificate
dated 28th February, 2020 of the Chartered Accountant Parekh Sule &
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Associates for the dues sought by the Claimant as on 31 st December,
2019 set towards the additional expenditure on power and for loss of
income on account of lower energy savings and which is set out in
the particulars of claim.
63. Mr. Dwarkadas has submitted that alongwith the
amended Statement of Claim, RCF produced a table of particulars of
claim as Annexure 25 and which table inter alia contained unproved
figures relating to loss caused due to additional expenditure incurred
on power for the period (i) 1 st April 2019 to 31st December 2019 (ii)
1st January 2020 to 31st March 2020 and (iii) 1st April 2020 to 30th
November 2020.
64. Mr. Dwarkadas has relied upon the Statement of
Defence of Thermax dated March 2021 and in particular Paragraph
84(a) and (f) thereof. Thermax has expressly disagreed with the
computation of the extra cost as alleged by the RCF as the Chartered
Accountant's Certificate dated 20th February, 2020 is extremely
restrictive and only based on limited records.
65. Mr. Dwarkadas has submitted that RCF in support of
its claim for damages of Rs.173.72 Crores has led the evidence of Mr.
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Shivkumar Subramaniam (CW-2) the Deputy General Manager -
Corporate Finance of RCF. Mr. Shivkumar Subramaniam (CW-2) has
filed three Affidavits in lieu of Examination in Chief dated 29 th
March, 2021, 30th June, 2021 and 20th July, 2021. He has submitted
that RCF alongwith the Evidence Affidavit dated 29 th March 2021 of
CW - 2, for the first time produced two new CA Certificates both
dated 11th January, 2020 authored by the same Chartered
Accountants who had certified the earlier Certificate annexed as
Annexure 23 of the Statement of Claim. Thermax has by its letter
dated 12th July, 2021 to Advocates of RCF expressly denied the
existence and contents of the CA Certificates.
66. Mr. Dwarkadas has submitted that CW-2 during the
course of his examination-in-chief, firstly - abandoned and/or not
even relied upon Annexure 23 which was produced alongwith the
Statement of Claim; and secondly - abandoned and/or not relied on
the table of Particulars of Claim produced as Annexure 25 of the
Statement of Claim. Instead, CW - 2 attempted to rely upon the two
new CA Certificates, the existence and contents of which were
expressly denied by Thermax. These two new CA Certificates were
nevertheless marked as Exhibit CW-2/C-1(Colly).
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67. Mr. Dwarkadas has submitted that even though the
two purported CA Certificates were marked in evidence, the author
of the documents viz. the Chartered Accountant was never examined
to prove the existence and correctness of the contents of the said
purported Certificates. He has submitted that the unproved
Certificates were themselves premised on alleged underlying
documents allegedly seen by the Chartered Accountants, which
documents were never produced nor proved.
68. Mr. Dwarkadas has referred to the two Affidavits in
lieu of Examination-in-Chief of CW-2. He has submitted that there
are no underlying documents whatsoever which were produced other
than the CA Certificates dated 11th January 2020 through CW-2.
69. Mr. Dwarkadas has submitted that in Paragraph 4 of
the Evidence Affidavit dated 20 th July, 2021, CW-2 has stated that all
information is derived from SAP Enterprise Resource Planning (ERP)
System, the primary document would be the print out or an
electronically retrieved data from such SAP ERP System. He has
submitted that this has not been produced. The reason for non-
production is apparent. This is because such electronic records can
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only be proved and could be regarded as admissible only if it is
proved in accordance with Section 65-B of the Evidence Act, 1872.
This has admittedly not even been attempted in the present case.
70. Mr. Dwarkadas has submitted that the only manner in
which the contents of the purported data stored on the SAP ERP
System could have been proved was by way of producing the primary
document i.e. the data retrieved directly from SAP ERP System with
the underlying documents thereof.
71. Mr. Dwarkadas has relied upon Paragraphs 5.6 to 5.14
of the Written Submissions of Thermax prior to final hearing of the
arbitration, where Thermax dealt with the issue of alleged loss
caused to RCF on account of additional expenditure of power. It has
been expressly submitted that Thermax was deprived of the
opportunity of questioning the Chartered Accountant as to the
Methodology used by him and/or in preparing the statement and / or
the underlying based on which the Chartered Accountant prepared
the same. In this view of the matter, RCF is not entitled to rely upon
the Chartered Accountant's statement and the same must be rejected
in toto by the Hon'ble Tribunal. Thermax has also relied upon
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authorities in this context.
72. Mr. Dwarkadas has submitted that the learned
Arbitrator in Paragraphs 70 to 75 of the Award, dealt with Issue No. 4
in relation to the alleged loss caused to RCF due to additional
expenditure incurred on power on account of breakdown of GTGs.
The finding in Paragraph 75 is that " the Respondent has contended
that in his affidavits Mr. Shivakumar has relied upon certificate of
Chartered Accountant but evidence of chartered accountant has not
been led. Hence, his evidence should not be accepted. This
contention cannot be accepted because Mr. Shivakumar who has
deposed to these figures has done so on his personal knowledge as
also on the basis of the records of the Claimant company as
maintained in the ordinary course of business. His evidence is not
shaken in cross- examination."
73. Mr. Dwarkadas has submitted that RCF has failed to
discharge its burden of proving its claim for damages. It has been
overlooked by the learned Arbitrator that RCF, without producing the
best evidence and primary evidence and in violation of the mandate
of Sections 59 and 65 of the Evidence Act, 1872 led parole/secondary
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evidence of Mr. Shivkumar Subramaniam (CW-2) on the alleged
contents of the documents which would have shown the alleged
expenses incurred, if any. He has submitted that failure to produce
the primary evidence and the best evidence ought to have invited
adverse inference to the effect that had these documents been
produced they would not have borne out the allegations of RCF.
Thus, CW -2 has failed to discharge its burden of proof by producing
the best evidence and primary evidence being the documents
themselves in his examination in chief.
74. Mr. Dwarkadas has submitted that finding of the
learned Arbitrator that the evidence of Mr. Shivkumar Subramaniam
(CW-2) is not shaken in cross examination, is entirely unreasoned. He
has relied upon the Questions and Answers (Q&A), in cross
examination of CW-2 where 25 questions relating to the
computations made in his evidence with respect to the claim made by
RCF of Rs.173.72 Crores were asked. It became apparent during the
cross examination of CW - 2 that he had merely relied on the CA
Certificates for computation of the claim.
75. Mr. Dwarkadas has submitted that the CA Certificates
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were not produced by leading evidence of the Authors thereof being
the Chartered Accountants themselves and the said unproved
Certificates were premised on alleged documents, which documents
were never produced nor proved.
76. Mr. Dwarkadas has submitted that the learned
Arbitrator rendered a completely unreasoned, perverse and patently
illegal finding in Paragraph 75 of the Award. He has submitted that
the conclusions reached by the learned Arbitrator that the CW - 2
had deposed to the figures "on his personal knowledge" and also on
the basis of the records of RCF as maintained "in the usual course of
business" are patently illegal and perverse. He has submitted that this
is because CW - 2, during the course of his cross examination,
admitted that the information contained in the records was
maintained by a separate department namely the accounts
department and officials working in that department. Additionally,
the CW-2 has stated that since the information contained in the
records was certified by Chartered Accountant, he had relied on the
said Certificates issued by the Chartered Accountant. Therefore, CW-
2 could never be said to have any personal knowledge of the
information contained either in the records or in the Certificates of
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the Chartered Accountant. At best, his evidence could be considered
as hearsay which is clearly not admissible in law.
77. Mr. Dwarkadas has submitted that the claim for
damages remained not proved and ought to have been rejected. The
learned Arbitrator rendered no reasons and finding qua the
quantification of the claim for additional expenditure and more
particularly the proof thereof. This is in contravention to Section
31(3) of the Arbitration Act. He has submitted that the award for
claim of damages to the tune of Rs.173.72 Crores is unreasoned,
perverse, patently illegal and against the most basic notions of justice
and is accordingly liable to be set aside.
78. Mr. Dwarkadas has submitted that one of the
conditions of Thermax was that the claim for damages due to
additional expenditure incurred on account of sourcing power from
other sources was either an indirect or consequential claim expressly
waived by the parties and hence, the learned Arbitrator, being a
creature of contract, was barred from awarding the same in terms of
the contract between the parties. However, the learned Arbitrator has
held that the damages claimed are a "direct loss" . He has referred to
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Paragraphs 70 and 75 of the Award in the context.
79. Mr. Dwarkadas has submitted that the issue which the
learned Arbitrator was thus called upon to determine considering the
contractual bar on grant of "indirect loss" or "consequential loss" was
to determine firstly, what would be the normal measure of damages
in a case like the present case and secondly, if something was beyond
the normal measure of damages then would the same not be
"indirect" or "consequential" and hence, contractually barred.
80. Mr. Dwarkadas has placed reliance upon the Judgment
of the Delhi High Court in Shwetadri Speciality Papers Pvt. Ltd. v.
National Research Development Corp.3 at Paragraph 19. He has also
placed reliance upon Judgment of the Supreme Court in Trojan and
Company vs R.M. Nagappa Chettiar 4 at Paragraph 22. He has placed
reliance upon Judgment of this Court in Chief Commercial
Superintendent of Railways vs. Anand Kumar 5. These Judgments
have considered Section 73(1) of the Contract Act in the context of
the loss or damages being "indirect" or "consequential" as against
3 2019 SCC OnLine Del 9345
4 (1953) 1 SCC 456
5 1996 SCC OnLine Bom 412
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direct approximate damages.
81. Mr. Dwarkadas has submitted that the learned
Arbitrator has in Paragraph 68 of the Award has observed, inter alia,
that the claim for loss of income on account of allegedly being unable
to obtain government subsidies is barred by Clause 32.2(a). This
finding shows that the Arbitrator found the claim for loss of income
as not being within the notional Section 73(1) i.e. not being
proximate nor direct but being indirect and remote. The learned
Arbitrator then holds that the claim for indirect and remote loss is
barred by Clause 32.2(a) thereby rendering Clause 32.2(a) a dead
letter, since it is held to exclude indirect and remote loss which is
already excluded by the statute itself.
82. Mr. Dwarkadas has submitted that the normal measure
of damages is what it would have cost the party to get out of the
situation. Applying the said principle, the only damages which could
be said to be the normal measure of damages would have been the
cost of repairs. The claim for additional expenditure on account of
power sourced from other sources cannot and would not fall within
the normal measure of damages nor has there been any consideration
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nor finding on this aspect by the learned Arbitrator.
83. Mr. Dwarkadas has submitted that applying the said
principles laid down by the Supreme Court and followed by the
Division Bench of this Court, the claim for additional expenditure
incurred on account of power sourced from other sources is only an
"indirect" or "consequential" loss and hence, expressly barred by the
Contract and beyond the jurisdiction of the learned Arbitrator.
Accordingly, the impugned Award in so far as it grants a claim for
Rs.173.72 crores towards additional expenditure allegedly incurred
by RCF is perverse and a patent illegality.
84. Mr. Dwarkadas has submitted that Thermax had
preferred a Counter Claim, inter alia, for refund of MAD which had
been unilaterally deducted by RCF ostensibly under Clause 3(73)
read with Clause 31.0 and Clause 31.1.3 of the GCC to the tune of
Rs.19,56,85,716/-.
85. Mr. Dwarkadas has submitted that it was Thermax's
contention that while as per the "Baseline Schedule" the RCF was
required to provide the main steam line by 30th August 2017, the
same was not made available by RCF till 8 th February 2018. Thus,
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there was a delay of approximately 162 days on the part of RCF in
providing the said main steam line which led to consequential delays
in project completion. It was Thermax's case that the non-availability
of steam line had an overriding effect on project completion. He has
referred to Paragraph 20(s) and 23 of Counter Claim of Thermax in
this context.
86. Mr. Dwarkadas has submitted that RCF in its Reply to
Counter Claim, alleged that PAC was issued on 7 th March 2019 after a
delay of 444 days and RCF had incurred huge losses due to delayed
performance of contract by Thermax. He has relied upon the emails
exchanged between the parties which show that RCF itself admitted
that the communication qua the main steam line being ready was
made only in February, 2018. As per the Baseline Schedule, RCF was
required to provide the main steam line by 30 th August 2017,
however, as is evident, the same was made available by RCF only in
February, 2018. Thus, there was a delay of approximately 162 days
on the part of RCF in providing the said main steam line.
87. Mr. Dwarkadas has submitted that Thermax placed
reliance upon the evidence of Mr. Sunil Raina (RW-1) in support of
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its Counter Claim. Thermax in particular placed reliance upon the
Affidavit of Evidence of RW-1 dated 10 th June 2021 at Paragraphs 21,
25 to 27 and 30. In contrast, RCF led the evidence of Mr. R.P. Jawale
(CW-1). He has submitted that in the evidence led by CW-1 there is
neither any deposition nor documentary material produced to even
allege, let alone establish that RCF incurred or suffered any loss on
account of the alleged delay by Thermax.
88. Mr. Dwarkadas has submitted that Thermax during the
course of oral arguments and in its written submissions, inter alia,
contended that the levy of MAD was illegal, in as much as, it was
RCF which delayed the handing over of steam line and that RCF had
not suffered any loss on account of the purported delays.
89. Mr. Dwarkadas has submitted that the learned
Arbitrator in Paragraph 81 to 92 of the said Award held that RCF was
entitled to levy MAD, as defined under the contract, for the delay
which comes to 444 days.
90. Mr. Dwarkadas has submitted that it is trite law as
held by the Supreme Court in the case of Kailash Nath v Delhi
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Development Authority6 at Paragraph 43.3 that even in case of levy
of liquidated damages, proof of actual loss or damage is a sine qua
non. He has submitted that there is no averment qua actual loss or
damage nor evidence led but the record shows to the contrary that
the admitted commercial use of RCF from March/April, 2018 was to
its immense benefit. The learned Arbitrator has not even considered
nor addressed the aspect of loss or damage suffered whilst permitting
RCF to deduct monies as liquidated damages despite there being no
established loss nor damage. He has submitted that the impugned
Award is thus, perverse and patently illegal in as much as it upholds
the levy of liquidated damages completely contrary to the express
provisions of Section 74 of the Indian Contract Act and the law laid
down by the Supreme Court in several decisions regarding the
requirement to prove actual loss or damage before any liquidated
damages can be imposed.
91. Mr. Dwarkadas has submitted that the learned
Arbitrator has not even addressed the aforementioned lack of proof
and the settled law.
92. Mr. Dwarkadas has submitted that the learned
6 (2015) 4 SCC 136
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Arbitrator has failed to appreciate and address the submission of
Thermax in so far as the levy of MAD by RCF for the alleged delay is
concerned. He has submitted that since RCF was in breach of its
contractual obligations and delayed the completion of main steam
line by 162 days, it cannot complain of any delay by Thermax. RCF
cannot take advantage of its own wrong. He has accordingly
submitted that the counter claim of Thermax ought not to have been
rejected by the learned Arbitrator.
93. Mr. Dwarkadas has relied upon Judgments which can
be broadly classified as under:
(i) On Principles of Evidence Act applying to arbitral
proceedings, he has placed reliance upon
Pradyuman Kumar Sharma V. Jaysagar M. Sancheti 7
at Paragraph 18 and 33.
(ii) On mere production and marking of documents not
amounting to proof of its contents, he has placed
reliance upon Bareilly Electricity Supply Co.Ltd. Vs.
7 (2013) 5 MhLJ 86
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The Workmen & Ors.,8 at Paragraph 14 & Sudhir
Engg. Company Vs. Nitco Roadways Limited 9 at
Paragraph 6 and 8.
(iii) On failure to produce party for cross examination
leads to a presumption that case set up is not
correct, he has placed reliance upon Vidhyadhar V.
Manikrao10 at Paragraph 17; Maharashtra State
Board of Secondary and Higher Education Vs. K.S.
Ganshu & Ors.,11 at Paragraph 11; Man Kaur (Dead)
by Irs. V. Hartar Singh Sangha12 at Paragraph 14 &
17; and Seethakathi Trust Madras Vs. Krisnaveni 13
at Paragraph 12.
(iv) On allowing claims for damages without any
evidence is liable to be set aside under Section 34
he has relied upon Essar Procurement Vs.
8 (1971) 2 SCC 617
9 1995 (34) DRJ 86
10 (1999) 3 SCC 573
11 (1991) 2 SCC 716
12 (2010) 10 SCC 512
13 (2022) 3 SCC 150
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Paramount Constructions14 at Paragraph 100 to 114;
Unibros Vs. All India Radio15 at Paragraph 19-20;
Jaiprakash Hyundai Consortium Satluj Jal Vidyut
Nigam Ltd.16 at Paragraphs 10, 14, 20-24, 38-49.
(v) On Arbitrator requiring to give reasons for rejecting
the submissions of a party; finding based on no
evidence is liable to be set aside and grounds for
setting aside under Section 34, he has relied upon
Bhanumati Jaisukhbhai Bhuta Vs. Ivory Properties &
Hotels Private Limited17 at Paragraphs 172, 173 and
175 & 176; Ssangyong Engineering and
Construction Company Limited Vs. National
Highways Authority of India (NHAI)18 at Paragraphs
37, 39, 41; Associate Builders Vs. Delhi
Development Authority19 at Paragraphs 29, 31, 32,
42.2, 43.
14 2016 SCC Online Bom 9697
15 2023 SCC Online SC 1366
16 2024 SCC Online Del 1237
17 2020 SCC Online Bom 157
18 (2019) 15 SCC 131
19 (2015) 3 SCC 49
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(vi) On rule of best evidence, he has relied upon J.
Yashoda Vs. K. Shobha Rani20 at Paragraphs 7-10;
Neeraj Dutta Vs. State (NCT of Delhi)21 at Paragraph
60; Vijay Vs. Union of India22 at Paragraph 34.
(vii) On admissions are best proof of facts, he has relied
upon Nagindas Ramdas Vs. Dalpatram Iccharam &
Ors.23 at Paragraph 27.
94. Mr. Dwarkadas has accordingly submitted that the
impugned Award requires to be set aside on ground of it being bereft
of reasons, overlooking material evidence, being perverse and
suffering from patent illegality.
95. Mr. Shyam Mehta, the learned Senior Counsel
appearing for the Respondent-RCF has submitted that it is the RCF's
case before the Arbitral Tribunal that the Plant was under the control
and supervision of Thermax and that the same was being operated by
Thermax with support of RCF and further that till issuance of the
20 (2007) 5 SCC 730
21 (2023) 4 SCC 731
22 2023 SCC Online SC 1585
23 AIR 1974 SC 471
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PAC, Thermax was responsible for the plant.
96. Mr. Mehta has submitted that Thermax's contention
that RCF had not pleaded that it was operating the plant under the
supervision of Thermax is totally incorrect. He has submitted that it is
clear that both Thermax and RCF agreed that till the issuance of the
PAC, Thermax was responsible for the plant and that the same was
being operated at the risk and cost of Thermax.
97. Mr. Mehta has referred to the contractual provisions,
viz. Clauses 1.1.1, 1.1.2, 1.2.19.1, 1.2.19.2, 4, 6, 30.1 and 30.2 in
support of his submission that these contractual provisions establish
beyond a shadow of doubt that Thermax was in charge and control of
the plant until the issuance of the PAC. Thermax also remained liable
and responsible for the plant in all respects until the issuance of the
PAC. He has submitted that this has also been admitted by Thermax
in its Counterclaim. It was the obligation of Thermax to handover the
fully operational plant to RCF inasmuch as the contract was a Lump
Sum Turnkey Contract.
98. Mr. Mehta has submitted that it is Thermax's
contention that the provisions of the Contract relating to PAC viz.
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Clauses 3(50) and 3(63) were irrelevant, redundant and otiose and
had been given a go-by to by RCF. It is not their case that any of the
aforementioned provisions of the contract viz. Clauses 1.1.1, 1.1.2,
1.2.19.1, 1.2.19.2, 4, 6 and 30.1 and 30.2 were irrelevant,
redundant and otiose and had been given a go-by to by RCF. He has
submitted that Thermax has accepted that these provisions were
always binding and applied in full force to the parties at all times. He
has submitted that this being so, it is absolutely clear that Thermax
was in charge and control of the plant and liable and responsible for
the same until the issuance of the PAC.
99. Mr. Mehta has submitted that as regards the contention
that Clauses 3(50) and 3(63) were irrelevant, redundant and otiose
and had been given a go-by to by RCF, no such contention was raised
by Thermax in its pleadings. He has submitted that in the absence of
a plea to this effect, Thermax was not entitled to raise the contention
in the course of arguments. He has submitted that since there was no
such pleadings raised by Thermax, there was no occasion for RCF to
deal with the same. Further no issue was framed by the Arbitral
Tribunal in that regard. He has submitted that there was also no
evidence whatsoever led by Thermax to prove the said contractual
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provisions were irrelevant, redundant and otiose and given a go-by to
by RCF.
100. Mr. Mehta has referred to the pleadings of Thermax
viz. Statement of Defence at paragraphs 34 and 35 where Thermax
had relied upon Clause 6 of the SCC; at paragraph 37 where Thermax
has referred to Clause 3(63) of the GCC; and at paragraphs 40 and 41
where Thermax has relied upon Clause 3(50) of the GCC. He has also
referred to paragraph 39 of the Counterclaim where Thermax has
relied upon Clauses 30.1 and 30.2 of the GCC as well as Clause 3(63)
of the GCC. These provisions have been relied upon by Thermax in
support of their case. Whilst relying upon the aforementioned
contractual provisions, Thermax has not averred that the same were
being relied upon without prejudice to its rights and contention that
they were irrelevant, redundant and otiose and given a go-by to by
RCF.
101. Mr. Mehta has submitted that it is well settled that an
Arbitrator is a creature of contract and is bound by terms and if the
Arbitrator travels beyond or outside the contract, the Award is liable to
be set aside. He has placed reliance upon Section 28(3) of the
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Arbitration Act and the judgment of the Supreme Court in Union of
India Vs. Bharat Enterprise24 in this context.
102. Mr. Mehta has submitted that as regards the contention
of Thermax that RCF wrongly delayed the issuance of the PAC, it is
important to note that in the course of arguments before the Arbitral
Tribunal, Thermax accepted the position that both GTGs had failed
during the defect liability period. Thermax did not question the
correctness of the PAC being issued w.e.f. 7th March 2019. There were
no arguments advanced by Thermax on this aspect.
103. Mr. Mehta has submitted that in view of above, it must
be accepted as an undisputed position that the PAC was rightly issued
w.e.f. 7th March 2019 and the defect liability period commenced from
7th March 2019.
104. Mr. Mehta has submitted that though Thermax has
argued to the contrary before this Court in these proceedings, by
denying that the PAC had been rightly issued with effect from 7th
March 2019 and which stand is also taken in Note 4 of the Written
Submission filed before this Court, the proven facts establish beyond
24 2023 SCC OnLine SC 369
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doubt that the RCF had rightly issued the PAC with effect from 7th
March 2019.
105. Mr. Mehta has submitted that in the proposal submitted
by Thermax to RCF on 2nd July 2019 for the purpose of issuing the
Notice to Proceed, Thermax expressly admitted that the effective date
of the PAC was 7th March 2019 and the defect liability period started
from this date.
106. Mr. Mehta has submitted that the PAC was liable to be
issued only upon Thermax fulfilling all the conditions stipulated in
Clause 3(50) of the GCC. From Thermax's letter dated 7th March
2019, requesting RCF to issue the PAC, itself it is absolutely clear that
even as on 7th March 2019, Thermax had not fulfilled all the
conditions stipulated in the said Clause 3(50). Thermax stated that it
was working on these pending issues and sought time till 30th June
2019 to complete the same. Thermax even suggested withholding Rs.
20 lakhs until the pending works were completed. It was pursuant to
this letter that RCF issued the PAC dated 15th March 2019 with effect
from 7th March 2019. He has submitted that thus, it is clear that
Thermax was not entitled to the PAC prior to 7th March 2019.
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107. Mr. Mehta has submitted that as per Clause 3(50), 12
milestones had to be achieved by Thermax before it was entitled to the
PAC. He has relied upon the evidence on record which shows that all 12
milestones were not achievable by the stipulated dates, and were
achievable only by 27th September 2019. He has submitted that this is
not being disputed by Thermax before the Arbitral Tribunal, because in
fact, no arguments were advanced by Thermax in this regard.
108. Mr. Mehta has submitted that though it is the case of
Thermax that the GTGs were put to commercial use in March / April
2018, it meant that RCF had taken over the plant and was in charge of
the same notwithstanding that the PAC was not issued with effect
from March / April 2018, Thermax had at no stage objected to RCF
using the plant for commercial production and/or asked RCF to stop
doing it. It was only when Thermax applied for the PAC vide its letter
dated 30th November 2018 that Thermax sought the PAC with effect
from 27th March 2018 on the basis that commercial production for
both GTGs had commenced by this date. However, subsequently, after
correspondence and meetings in this regard with RCF, in its letter
dated 7th March 2019 seeking the PAC, Thermax did not request for
the PAC to be issued with effect from 27th March 2018. It is therefore,
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clear that Thermax had itself given up its contentions regarding
commercial use / production with reference to the issuance of the PAC
and had accepted the fact that it had to fulfill the conditions stipulated
in the contract for the purpose of securing the PAC from RCF.
109. Mr. Mehta has submitted that both RCF and Thermax
are bound by the Contract and consequently, take over can be effected
only in accordance with the Contract and not otherwise. Under the
contract commissioning is a stage prior to production (Clause 3(7) of
the GCC). Since commercial production started sometime in March /
April 2018, commissioning occurred sometime before that.
Accordingly, it was stated in the Annual Report that the plant was
commissioned in April 2018. Thermax in its submissions has sought
equating commissioning with the take over of the plant after issuance
of PAC. He has submitted that it is clear from the contract that
commissioning and take over are two different and distinct stages
during the manufacture and installation of the plant and the two
cannot be equated.
110. Mr. Mehta has submitted that though Thermax has
relied upon Annual Report for FY 2018-19 where RCF had made a
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categorical statement that the GTGs were commissioned and had
resulted in energy savings for RCF and had claimed depreciation in
favour of the GTGs during FY 2018-19, neither of these two acts of
RCF show that RCF had taken over the plant under the Contract or
otherwise.
111. Mr. Mehta has submitted that depreciation was claimed
in accordance with law and has no bearing on the takeover of the
plaint by RCF under the Contract and does not and cannot even
remotely suggest that RCF had taken over the plant. In any event, RCF
did take over the plant in FY 2018-19 and as such its claim for
depreciation was consistent with the take over of the plant in FY
2018-19.
112. Mr. Mehta has submitted that though it was contended
that RCF derived a commercial benefit of Rs. 500 crores by using the
GTGs from March / April 2018, no such contention was raised before
the Arbitral Tribunal. The computation of Rs. 500 crores has been
arrived at by Thermax in Annexure A to Note 2 submitted before this
Court. He has submitted that this computation cannot be and ought
not to be considered at this stage. It is a factual issue and a matter of
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evidence and was required to be pleaded and proved before the
Arbitral Tribunal. He has submitted that even on the face of it, it is
speculative and based on assumptions and surmises.
113. Mr. Mehta has submitted that it is the contention of
Thermax that the Arbitral Tribunal did not consider extensive
evidence, which purportedly shows that RCF had taken over the plant
in March / April 2018. He has submitted that the Arbitral Tribunal
considered the relevant and material facts while arriving at its
conclusion that Thermax was in charge and control of the plant until
7th March 2019. The Arbitral Tribunal has considered the contractual
provisions, the counterclaim of Thermax, Thermax's submissions with
regard to the statements made by RCF in its Annual Report, RCF's
claim for depreciation and various other relevant facts while arriving
at its conclusion and the same cannot be faulted.
114. Mr. Mehta has submitted that it is the case of RCF in its
pleadings on the issue of the defective nature of the GTGs that the
filters installed by Thermax/Siemens were not as per the specifications
provided in the contract. They did not have the minimum operating
life of two years and on the contrary had an operating life of only six
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months and were required to be replaced every six months. It was also
the case of RCF in its pleadings that Thermax/Siemens were required
to inform themselves of the local conditions before supplying and
installing the plant, which they failed to do. Thermax/Siemens had
not configured the Compressor Malfunctioning Alarm in the control
system of the GTGs.
115. Mr. Mehta has referred to the evidence led by RCF in
the first additional Affidavit dated 31st March 2021 of CW-1, Mr.
Jawale, where he has deposed regarding the defective filters and the
non-configuration of the Compressor Malfunctioning Alarm. He has in
particular relied upon paragraphs 23 and 25 of the Affidavit of
Evidence of CW-1 in this context. He has submitted that it is clear that
both in the pleadings and in its evidence that RCF had consistently
made out a case of defective filters and the failure on the part of
Thermax/Siemens to configure the Compressor Malfunctioning Alarm.
116. Mr. Mehta has submitted that the Arbitral Tribunal in
the impugned Award although has not accepted RCF's case based on
the rubbing theory, accepted its case with regard to the defective filters
and non-configuration of the Compressor Malfunctioning Alarm.
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117. Mr. Mehta has submitted that as regards the alleged
non-compliance by RCF with the O & M Manual, the Arbitral Tribunal
accepted the case of RCF that Thermax was in charge and responsible
and liable for the plant in all respects until the issuance of the PAC and
consequently until then, if there was any non-compliance with the O &
M Manual, the fault lay at the door of Thermax and RCF could not be
blamed for the same.
118. Mr. Mehta has submitted that Thermax's case regarding
the 269 air intake filter alarms for GTG 1 and 52 air intake filter
alarms for GTG 2 observed in their respective control systems during
the period from 22nd February 2019 to 8th March 2019 and the
allegation that RCF being aware of these alarms did not bring the
same to the notice or attention of Thermax/Siemens, was not a case
which was sought to be made out before the Arbitral Tribunal at any
time. This factual contention had been raised for the first time in the
course of arguments in this Petition, which is clearly impermissible.
119. Mr. Mehta has submitted that Thermax / Siemens were
fully aware and apprised of the situation at the site and the issues
being faced in the GTGs. He has submitted that in not a single email
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have either Thermax or Siemens raised any grievance with regard to
the non-availability of the data relating to the alarms and that they
were not aware of the same and alleged that RCF had not provided
the same. This is because their engineers were at the site and therefore
aware of all the alarms and signals observed in the control systems of
the GTGs.
120. Mr. Mehta has submitted that the 269 air intake filter
alarms and 52 air intake filter alarms observed in GTG 1 and GTG 2
respectively, were all the FP915 signal / alarm. In the Fault Procedure
forming part of the O & M Manual, the action suggested when this
alarm is observed is to "Check the trend curve. Change filter stage No.
1 and or stage 2 depending on the trend curve. ". He has submitted
that it is pertinent to note that the data regarding the trend curves was
always available with Thermax / Siemens and the same even finds
place in the Siemens RCA. This has also been admitted by Mr. Roger
Ahlin (RW-2) during his cross-examination that the trend curve data
was available with Siemens at the time of making the Siemens RCA.
He has submitted that neither in its pleadings nor in the evidence has
Thermax sought to make out a case that the trend curves observed
with regard to the filters pursuant to the FP915 signals / alarms, were
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of such a nature that they indicated that the filters required to be
changed.
121. Mr. Mehta has submitted that the FP915 signal / alarm
did not relate to the compressor and did not suggest any fault in the
compressor or action to be taken with regard to the compressor. The
only signal / alarm relating to the compressor was the FQ910
Compressor Malfunctioning Alarm. The action suggested when this
signal / alarm was observed, was to shut down the GTG and wash the
compressor. He has submitted that admittedly, this signal / alarm was
never observed in the control system of either of the GTGs. He has
submitted that in the absence of the Compressor Malfunctioning
Alarm being observed in the control system, it was safe for parties to
assume that there was nothing wrong in the compressor, including
that the compressor was not severely fouled.
122. Mr. Mehta has submitted that the contention of
Thermax that the primary alert mechanism were the air intake filter
alarms is completely misconceived and baseless. He has submitted that
it is only the Compressor Malfunctioning Alarm which indicates a
problem in the compressor. This alarm is therefore the primary alert
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mechanism in relation to the compressor. He has submitted that the
failure on the part of Thermax / Siemens to configure this alarm was
therefore a very serious defect in the GTGs and this led to the
breakdown of the GTGs inasmuch as there was no indication at any
point of time that there was any problem or issue with the
compressors or that they were severely fouled.
123. Mr. Mehta has referred to Siemens RCA in support of his
submission that this establishes that the GTGs were defective. He has
submitted that in view of high saline or salt content in the air at the
site of the plant, the Siemens RCF recommended the adjustment of the
replacement interval of the filters based on time. It was also
recommended to evaluate whether the existing maintenance plan for
the air intake filters required to be modified. It is further stated in the
Siemens RCA that if F9 filters had been installed instead of F8 filters,
the events that had occurred would have occurred at a slightly later
stage, meaning thereby that the GTGs would not have failed in March
2019. It was further found that the Compressor Malfunctioning Alarm
of both GTGs was incorrectly programmed in the control system as a
result of which this alarm did not appear in February and March 2019,
when it should have appeared in the control system. The RCA
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recommended that this alarm be rectified in both GTGs.
124. Mr. Mehta has submitted that the Siemens RCA does not
arrive at any conclusive finding with regard to the cause of the failure
of the GTGs, but merely provides "likely" and "possible" causes for the
failure. He has submitted that therefore, it is evident that Siemens is
not clear about the cause of the failure of the GTGs. In any event, it is
not possible to blame RCF for the failure of the GTGs on the basis of
such a speculative RCA.
125. Mr. Mehta has submitted that the testimony of Mr.
Roger Ahlin (RW-2) and Mr. Michael Wood (RW-3), inter alia, also
corroborates the findings of the Siemens RCA on the above aspects. He
has referred to their evidence in this context.
126. Mr. Mehta has submitted that it is clear from the
Siemens RCA itself that GTGs were defective and that if in fact any
party had failed to follow the O & M Manual or the instructions of
Siemens, it was Thermax and not RCF.
127. Mr. Mehta has submitted that though the material on
record shows that the normal operating life of the filters was a
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minimum of two years, the filter lifetime did not even last a year. He
has relied upon the documentary evidence on record, which includes
O & M Manual, which provides that the filter expiry date is required
to be checked after two years of operation, suggesting that the filter
operating life is at least two years.
128. Mr. Mehta has submitted that the plant was inherently
defective and neither designed nor installed properly by Thermax /
Siemens and which is apparent from the fact that at the very
beginning, the plant was displaying all kinds of defects. Repeatedly
signals/alarms/trips as provided in the Fault Procedure were
observed. On 27th February 2019, an abnormal sound was heard in
GTG-1 and the air compressor suction duct clamps of GTG-2 had
become detached from their original position and that there was a gap
between the suction duct, lower and upper halves, from where air was
being released. Although this was to be brought to the attention of
Thermax, in view of plant being under control and supervision of
Thermax, these issues ought to have been investigated thoroughly by
Thermax / Siemens, possibly by opening the compressor and
examining it.
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129. Mr. Mehta has submitted that on 28th February 2019,
there was an increase in vibrations in GTG-1, thereafter the vibrations
remained more or less constant at the increased level. He has
submitted that Mr. Wood has considered this aspect in paragraph 6.4.1
of the RINA Report. Mr. Wood states that sudden changes in vibrations
normally indicated that there has been a mechanical change in the
compressor or turbine. He has referred to the cross-examination of Mr.
Michael Wood (RW-3) (Q&A 52 and 53) where he was asked what is
meant by mechanical change in the compressor or turbine. Mr.
Michael Wood (RW-3) stated that if there were changes in the
vibration behaviour, then one of the possible reasons was that pieces
of the rotating equipment had broken away e.g. a piece of the blade.
He has admitted that vibrations in GTG-1 had continued to remain at
the higher level after 28th February 2019 until its failure i.e. changed
permanently.
130. Mr. Mehta has submitted that in view of RINA Report
and the deposition of Mr. Michael Wood (RW-3), it is clear that on
28th February 2019 itself, one or more pieces of the rotor blades of
GTG-1 had broken away which resulted in the permanent increase in
vibrations.
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131. Mr. Mehta has submitted that Mr. Roger Ahlin (RW-2)
was cross-examined (Q&A 78 - 80) with regard to the abnormal
sound heard on 27th February 2019. He has virtually admitted that no
independent investigation was carried out and that Siemens therefore
did not know the cause of the sound.
132. Mr. Mehta has submitted that it is clear from Mr. Roger
Ahlin's answers that Thermax / Siemens did not investigate the matter
further with a view to determine the reason for the sound. They ought
to have opened the compressor and examined it. Instead, all that they
did and recommended was to keep washing the compressor.
133. Mr. Mehta has submitted that though it is alleged by
Thermax that RCF did not shut down GTG-1 immediately on receiving
instructions from Siemens on 21st March 2019 at 13:27 p.m. to do so,
RCF did immediately commence the process of shutting down GTG-1.
He has submitted that in a similar situation in February 2019, when
instructed by Siemens to urgently shut down and wash the
compressor, Thermax/RCF had not done so within 24 to 48 hours after
receiving the instructions and Siemens had not found any fault with
the same. He has submitted that moreover, the Compressor
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Malfunctioning Alarm was not seen in the control system and hence,
there was no cause for RCF to be concerned about the compressor
being damaged. He has submitted that RCF cannot be blamed for not
instantaneously shutting down GTG-1 by risking its downstream plant
but instead taking all the proper steps to shut down GTG-1 after
taking precautions to safeguard the downstream plant and GTG-1 in
the same manner as it had done in the past, e.g. February 2019, under
the supervision of Thermax.
134. Mr. Mehta has relied upon the findings of the Arbitral
Tribunal on the above aspects i.e. paragraphs 19, 35 to 54, 63, 85 to
87 and 95 of the impugned Award. He has submitted that these
findings clearly show that there was no confusion whatsoever in the
mind of the Tribunal nor is there any confusion in the findings
rendered in the impugned Award.
135. Mr. Mehta has submitted that out of the claims of RCF
for damages / compensation from Thermax, the Arbitral Tribunal has
only awarded claim of Rs. 173.72 Crores towards loss suffered by RCF
due to additional expenditure on power. All the other claims of RCF
were rejected by the Arbitral Tribunal. He has referred to the findings
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of the Arbitral Tribunal where the claim of Rs. 173.72 Crores has been
dealt with i.e. paragraphs 56 to 62, 64 to 76 and 96 of the impugned
Award.
136. Mr. Mehta has submitted that RCF's claim for damages /
compensation of Rs. 173.72 Crores was based on the loss caused to it
on account of the increased expenditure incurred by RCF to secure
power from other sources due to the breakdown of the 2 GTGs. After
the GTGs broke down, RCF was required to secure power from the
State Grid i.e. MSEB as well as to generate power from steam turbo
generators. The cost of procuring power through these sources was
higher than the cost of power procured through the GTGs. The
increased cost of power procured by RCF during the period from 1st
April 2019 to 30th November 2020 was Rs. 173.72 Crores.
137. Mr. Mehta has submitted that the said loss suffered by
RCF naturally arose in the usual course of things and parties obviously
knew that such a loss would arise in the event of the breakdown of
the GTGs. The immediate effect of the breakdown of the GTGs would
be the procuring of power from other sources and this was the natural
consequence of the breakdown of the GTGs. Such a loss was obviously
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in clear contemplation of the Parties. There is no question of such a
loss being remote or indirect. This loss is therefore covered by the
first paragraph of Section 73.
138. Mr. Mehta has submitted that Thermax has accepted the
position that such a loss on account of the increased expenditure arose
out of the breakdown of the GTGs is covered by the first paragraph of
Section 73. However, it seems to be the case of Thermax that this loss
is a "consequential loss", which though covered by the first
paragraph of Section 73, is excluded by virtue of Clause 32.2(a) of
the GCC. It is Thermax's case that the consequential loss is not the
same as remote or indirect loss. Thus, it fell for consideration before
Arbitral Tribunal, as to what is the meaning of consequential loss.
139. Mr. Mehta has submitted that the consequential loss is
the same as indirect loss and is not a loss naturally arising in the usual
course of things or which parties knew would arise. It is therefore, a
loss covered by the second paragraph of Section 73 and not the first
paragraph. He has placed reliance upon Saint Line Limited Vs.
Richardsons, Westgarth & Co., Limited (supra); McDermott
International Inc. Vs. Burn Standard Co. Ltd. and others 25, Black's
25 (2006) 11 SCC 181 at paras 116 to 120
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Law Dictionary and P. Ramanatha Aiyar Dictionary.
140. Mr. Mehta has submitted that in the decision relied
upon by Thermax on the issue of consequential loss, namely Seth
Thawardas Pherumal (supra), the parties had contemplated the
remote loss and expressly excluded it contractually. This was not a
decision on consequential loss. Further, the decision of Shwetadri
Speciality Papers Pvt. Ltd. (supra) and Trojan And Company (supra)
relied upon by Thermax are not cases of consequential damages. They
are cases relating to the sale of shares (i.e. goods) and, as such, the
principle relied upon therein by Thermax is not applicable in the
present case, in as much as the present case is not a case of sale of
goods. He has submitted that Chief Commercial Superintendent of
Rail ways, Secunderabad Vs. Anand Kumar (supra) relied upon by
Thermax was a case where the claim in question was held to be
remote and hence, barred under Section 78(d) of the Indian Railways
Act, 1890. He has referred to Section 78(d), which treats indirect
and consequential damages as being of the same kind i.e. remote. He
has submitted that even the Legislature has treated consequential
damages as damages which do not naturally arise in the usual course
of things from a breach of contract.
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141. Mr. Mehta has submitted that the extracts from
McGregor on Law of Damages relied upon by Thermax relate to
damages under the law of torts and that too, on damage to goods. It is
inapplicable in the present case. He has submitted that it is well
settled that the plant and machinery fixed to the ground are not
goods, but are immovable property. The GTGs manufactured and
installed by Thermax constitute plant and machinery and are fixed to
the ground and hence, are not goods. Consequently, the principles
applicable to goods will not apply to the GTGs.
142. Mr. Mehta has submitted that Section 73 is based on the
principles of English Law as enunciated in the classic case of Hadley
Vs. Baxendale. This being so, there is no question of Thermax
contending that English Law ought not to be considered while
deciding what is consequential loss in the context of Section 73.
143. Mr. Mehta has submitted that the consequential loss is
also an indirect or remote loss and is not a loss that arises naturally in
the usual course of things from a breach of contract. Accordingly,
Clause 32.2(a) did not exclude losses naturally arising from the usual
course of things from a breach of contract. He has submitted that
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RCF's claim for damages/compensation of Rs. 173.72 Crores is not
excluded by Clause 32.2(a) of the GCC.
144. Mr. Mehta has dealt with the contention of Thermax viz.
that the claim of RCF to damages / compensation was beyond the scope
of Agreement titled as "Notice to proceed" dated 2nd July 2019 entered
into between Thermax and RCF in relation to repairs and reinstatement
from GTGS. He has submitted that this contention is misconceived.
Notice to Proceed is a clear and unambiguous document and therefore,
required to be construed on the basis of the terms contained therein. He
has submitted that it is clear from the terms of the Notice To Proceed
that it was only concerned with the repairs and restoration of the GTGs
and was issued by RCF in view of the provisions of Clause 17 of the
SCC and pursuant to an arrangement agreed to between RCF and
Thermax with regard to the repairs and restoration of the GTGs. The
Notice To Proceed had no bearing on the right of RCF to claim damages
from Thermax for the loss suffered by RCF on account of the failure of
the GTGs.
145. Mr. Mehta has submitted that the contention of Thermax
with regard to force majeure, i.e. Covid-19 pandemic, which broke out
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in March, 2020 being a force majeure event due to which RCF's claim
for damages of Rs. 173.72 Crores is liable to be rejected is
misconceived. He has submitted that there is no question of the Covid-
19 pandemic being a force majeure event for a claim commencing from
1st April 2019, when there was no such pandemic in existence.
Moreover, the two GTGs were required to be repaired and restored
within 33 and 35 weeks respectively, which period was virtually over by
March, 2020. He has submitted that it is obvious that Thermax was
merely using the Covid-19 pandemic as an excuse for the delay on its
part in repairing and restoring the GTGs.
146. Mr. Mehta has submitted that Thermax neither produced
any material whatsoever in terms of Clause 35 of the GCC nor evidence
was led to show how the Covid-19 pandemic prevented or delayed the
completion of the repairs and restoration of the GTGs. The damaged
GTGs had already shipped to Sweden much before the Covid-19
pandemic. Thermax has neither explained nor proved what prevented
or delayed the carrying out of the repairs and restoration of the GTGs in
Sweden, when they were already at the factory of Siemens prior to the
outbreak of the Covid-19 pandemic.
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147. Mr. Mehta has submitted regarding the contention of
Thermax that the issue of force majeure due to the Covid-19 pandemic
was not considered by the Arbitral Tribunal, the admitted facts
established beyond a shadow of doubt that there is no substance
whatsoever in this contention and that the Arbitral Tribunal was not
required to consider every such frivolous and trivial issue raised by
Thermax.
148. Mr. Mehta has submitted that insofar as the contention of
Thermax that the Chartered Accountant, who had prepared the
Certificates which have been relied upon in the Affidavit of Evidence of
Mr. Shivkumar Subramanian (CW-2), the Deputy General Manager-
Corporate Finance of RCF, at the relevant time, having neither been
examined nor produced for cross-examination, made it impossible for
Thermax to ascertain the basis on which, the said Certificates were
prepared or the details of the relevant records relied upon, nor was it
possible the controvert the said Certificates, is misconceived. He has
submitted that the claim of Rs. 173.72 Crores was proven by the
evidence of Mr. Shivkumar Subramanian (CW-2), who had personal
knowledge of the facts and figures deposed in the Affidavit of
Evidence. He has referred to the Affidavit of Evidence dated 29th
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March 2021 as well as cross-examination of CW-2 in this context. He
has submitted that CW-2 has in support of the computation of
damages i.e. additional expenditure incurred by RCF towards the cost
of power, submitted two financial statements, one for the period from
1st April 2019 to 31st March, 2020 and the second for the period from
1st April 2020 to 30th November 2020, which have been annexed to
the Affidavit of Evidence. Thus, the Financial Claim Statements were
part of the Certificates of the Chartered Accountants dated 11th
January 2020, which were produced by CW-2. These Financial
Statements contained the break up and particulars of the various
expenses incurred by RCF for the purpose of generating power from
the GTGs, Turbo generators and MSEB.
149. Mr. Mehta has also referred to the further Affidavit of
Evidence dated 20th July 2021, in which the CW-2 has deposed to the
correctness of the amounts and figures in the Financial Claim
Statements. He has also relied upon the readings in the SAP ERP
System as regards the cost of power secured through the turbo
generators and GTGs. CW-2 has deposed that he has personally
verified the figures and data in the SAP ERP System and that the
computation of the expenditure incurred towards the consumption of
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power as provided by CW-2 in his Affidavit of Evidence dated 29th
March 2021, which was based on these figures and data and was
correct.
150. Mr. Mehta has submitted that the CW-2 in his cross-
examination when asked as to who had prepared these Financial
Claim Statements, CW-2 answered that the same were prepared by his
costing team under his supervision. He has submitted that both the
Certificates of the Chartered Accountant state the Financial Claim
Statements annexed thereto were prepared by the Management of
RCF and that the contents thereof had been verified by the Chartered
Accountants from the Books of Accounts and from the other relevant
records of RCF. He has submitted that CW-2 being part of the
Management of RCF as the Deputy General Manager, Corporate
Finance was having personal knowledge of the matter and was in the
best position to prove the claim. In fact, CW-2 was in a better position
than the Chartered Accountants. Consequently, the evidence of Mr.
Shivkumar Subramanian (CW-2) was the best evidence and there was
no requirement to lead the evidence of the Chartered Accountants.
151. Mr. Mehta has submitted that the contention of
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Thermax that the alleged underlying documents were not produced is
based inter alia on the incorrect assumption that the data and figures
relied upon by Mr. Shivkumar Subramanian (CW-2) can be derived
only from underlying documents.
152. Mr. Mehta has submitted that the contention of Thermax
that RCF ought to have produced a printout of the SAP-ERP System to
prove its claim and that in the absence thereof, the evidence of Mr.
Shivkumar Subramanian (CW-2) was secondary evidence is also
misconceived. He has submitted that as explained by CW-2, the SAP-
ERP System is a system in which entries are made. It is not a
document in the sense of an email, contract etc. CW-2's deposition was
that he verified the various inputs and figures available in the SAP-ERP
System with his own records and the records of RCF. In these
circumstances, the evidence of CW-2 was not secondary evidence, but
primary evidence adduced on the basis of his records and records of
RCF and his personal knowledge.
153. Mr. Mehta has submitted that it is well settled that
while considering an application under Section 34 of the Arbitration
Act, the Court does not act as a Court of Appeal and errors of fact
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cannot be corrected. A possible view by the Arbitrator on facts has
necessarily to pass muster as the Arbitrator is the ultimate master of
the quantity and quality of evidence to be relied upon, when he
delivers his award. Once it is found that the Arbitrator's approach is
not arbitrary or capricious, then he is the last word on facts. He has
placed reliance on the decision of the Supreme Court in Associate
Builders Vs. Delhi Development Authority (supra) in this context.
154. Mr. Mehta has submitted that the counterclaim of
Thermax with regard to MAD by which Thermax sought an Award
against RCF for the amount of Rs. 23,09,09,100/- recovered by RCF as
MAD has been rightly rejected by the Arbitral Tribunal.
155. Mr. Mehta has submitted that Clause 3(73) and Clause
31.1.3 of the GCC provided for MAD. He has submitted that it is clear
from the above provisions of the GCC that the time for completion of
the works was the essence of the Contract and of utmost importance
and in the event of Thermax failing to achieve the Preliminary
Acceptance within the contractual completion period from the
effective date, then Thermax was liable to pay to RCF, MAD at the
rate of 0.77% of the total contract price for every week or part thereof,
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subject to a maximum of 5% of the contract price. He has submitted
that the Preliminary Acceptance was to be achieved within 22 months
from effective date i.e. by 11th December 2017. Thermax achieved
Preliminary Acceptance only on 7th March 2019 after a delay of 444
days. Consequently, RCF was entitled to recover MAD from Thermax
for the period of delay. RCF recovered only 5% of the contract price as
MAD in view of the ceiling of 5% stipulated by Clause 31.1.3 of the
GCC.
156. Mr. Mehta has submitted that it is well settled that if
the terms of a contract stipulate the liquidated damages to be
recovered in the case of breach of contract, the same can be recovered
from the party who has committed the breach of contract unless it is
established by such party that the said liquidated damages /
compensation was unreasonable or by way of a penalty. He has placed
reliance on the decision of the Supreme Court in Oil and Natural Gas
Corporation Ltd. Vs. SAW Pipes26. He has submitted that it is not the
case of Thermax in its Counterclaim that the liquidated damages
stipulated by Clause 31.1.3 were either unreasonable or in the nature
of a penalty. It is the case of Thermax in its pleadings that RCF had
26 2003(5)SCC 705
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not shown that the delay in achieving Preliminary Acceptance was on
account of Thermax. He has submitted that the question whether the
stipulation of liquidated damages was unreasonable or in the nature of
a penalty cannot be raised unless it is pleaded. Accordingly, it must be
assumed that the liquidated damages agreed by parties vide Clause
31.1.3 were a reasonable estimate of the loss that would be caused to
RCF on account of the delay on the part of Thermax in achieving
Preliminary Acceptance and there was no necessity for RCF to prove
any loss.
157. Mr. Mehta has submitted that the contention of
Thermax that RCF did not establish that the delay in achieving
Preliminary Acceptance was on account of Thermax is misconceived.
The Arbitral Tribunal after considering all the evidence and material
on record has rejected the contention of Thermax. RCF had produced
voluminous documents in answer to Thermax's contentions and
proved that Thermax alone was guilty of the delay in achieving
Preliminary Acceptance. This was accepted by the Arbitral Tribunal.
He has placed reliance upon the evidence of RCF's witness, Mr.
Ravindra Jawale, CW-1, who has deposed regarding delay on the
part of Thermax in paragraph 4 of further Affidavit of Evidence dated
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31st March 2021. Thermax's Witness, Mr. Sunil Raina, RW-1 was also
cross-examined in detail on this aspect. The Arbitral Tribunal, after
considering and appreciating the evidence led by both sides, dealt with
the various issues raised by Thermax in detail in paragraph 91 of the
impugned Award. He has submitted that these are all findings of fact
and they cannot be interfered with through proceedings under Section
34 of the Arbitration Act.
158. Mr. Mehta has submitted that the learned Arbitrator has
considered the submissions of Thermax as well as the evidence on
record while arriving the findings on the matters relating to PAC. He
has relied upon the various findings on the submissions of Thermax.
159. Mr. Mehta has submitted that Thermax has contended
that the impugned Award is liable to be set aside, if it falls within the
three categories enunciated in the decision of the Supreme Court in the
case of OPG Power Generation Pvt. Ltd. Vs. Enexio Power Cooling
Solutions India Pvt. Ltd. & Anr.27. He has submitted that according to
Thermax, the impugned Award is devoid of reasons or in any event, the
reasons furnished are inadequate. He has submitted that in fact the
learned Arbitrator has given reasons in support of her findings and
27 (2025) 2 SCC 417
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which have been relied upon. He has submitted that Thermax has
completely misconstrued the judgment of the Supreme Court in OPG
Power Generation Pvt. Ltd. (supra). In paragraph 80, the Supreme
Court in the first sentence itself expressed its absolute agreement with
the view taken by the Supreme Court in paragraphs 34 and 35 of its
decision in the case of Dyna Technologies (supra). The ratio of the
Supreme Court in Dyna Technologies (supra) has thus been reaffirmed
by the Supreme Court in OPG Power Generation Pvt. Ltd. (supra). The
Supreme Court has merely added that in appropriate cases, the
documents referred to in the award may also be examined to decide
whether the reasons in the award are unintelligible or inadequate.
Accordingly, it is open for the Court considering an application under
Section 34 to examine documents produced before the Arbitral Tribunal
for the purpose of deciding whether the reasons in the award are
adequate and intelligible. He has submitted that the contention of
Thermax that RCF has sought to cover up the absence of reasons by
relying upon the documents and material not referred to in the Award
is misconceived.
160. Mr. Mehta has submitted that the reasons in the
impugned Award are in fact intelligible and adequate. The learned
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Arbitrator may not have referred to every email or correspondence in
the impugned Award. He has submitted that all relevant facts and
materials have duly been considered by the learned Arbitrator. It is well
settled that an Arbitrator is not required to consider or deal with each
and every submission and piece of evidence while adjudicating upon
the various issues and it is sufficient for the Arbitrator to consider the
relevant submissions and material on record, which in the instant case,
the learned Arbitrator has done.
161. Mr. Mehta has submitted that RCF has not attempted to
call upon this Court to reappreciate the entire evidence or to reinterpret
the terms of the Contract as contended by Thermax. On the contrary,
this is exactly what Thermax has invited this Court to do so.
162. Mr. Mehta has accordingly, submitted that there is no
valid ground raised by the Petitioner under Section 34 of the
Arbitration Act and the above Commercial Arbitration Petition requires
to be dismissed.
163. Having considered the submissions, from a reading of
the impugned Award, it is evident that the findings arrived at by the
learned Arbitrator are inter alia based on no evidence at all or by
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disregarding vital evidence. It is well settled law that a Court under
Section 34 of the Arbitration Act can only look beyond and outside the
Award for the limited purpose of considering whether the evidence on
record has been ignored and/or disregarded by the Arbitral Tribunal.
Further several findings of the learned Arbitrator in the impugned
Award are bereft of reasons.
164. The Supreme Court in its recent decision in OPG Power
Generation Pvt. Ltd. (supra) has laid down three categories for setting
aside an Arbitral Award in paragraph 80, which read thus :-
"80. We find ourselves in agreement with the view
taken in Dyna Technologies (supra), as extracted
above. Therefore, in our view, for the purposes of
addressing an application to set aside an arbitral
award on the ground of improper or inadequate
reasons, or lack of reasons, awards can broadly be
placed in three categories:
(1) where no reasons are recorded, or the
reasons recorded are unintelligible;
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(2) where reasons are improper, that is, they
reveal a flaw in the decision- making process; and
(3) where reasons appear inadequate."
165. After setting out the three categories, the Supreme
Court has in paragraphs 81 to 83 held as under:
"81. Awards falling in category (1) are vulnerable as
they would be in conflict with the provisions of
Section 31(3) of the 1996 Act. Therefore, such
awards are liable to be set aside under Section
34, unless (a) the parties have agreed that no
reasons are to be given, or (b) the award is an
arbitral award on agreed terms under Section 30.
82. Awards falling in category (2) are amenable to a
challenge on ground of impropriety or perversity,
strictly in accordance with the grounds set out in
Section 34 of the 1996 Act.
83. Awards falling in category (3) require to be dealt
with care. In a challenge to such award, before
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taking a decision the Court must take into
consideration the nature of the issues arising
between the parties in the arbitral proceedings and
the degree of reasoning required to address them.
The Court must thereafter carefully peruse the
award, and the documents referred to therein. If
reasons are intelligible and adequate on a fair-
reading of the award and, in appropriate cases,
implicit in the documents referred to therein, the
award is not to be set aside for inadequacy of
reasons. However, if gaps are such that they render
the reasoning in support of the award
unintelligible, or lacking, the Court exercising
power under Section 34 may set aside the award."
(emphasis supplied)
166. Having perused the impugned Award, it falls within all
the three categories as enunciated by the Supreme Court in OPG Power
Generation Pvt. Ltd. (supra), which render the impugned Award liable
to be set aside.
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167. The learned Arbitrator has side-stepped one of the
principal issues that arose for consideration, viz. the fact that RCF had
taken over the plant from Thermax and was using the plant for
commercial purposes for approximately eleven months from April 2018
to March 2019 prior to issuing the PAC. It was the contention of
Thermax that RCF had benefited by the use of the plant by substantially
saving on energy costs as well as other benefits. Thermax had led
extensive evidence before the learned Arbitrator to show that RCF was
in complete control of the plant from April 2018 onwards, i.e. well
before it issued the PAC and was using the plant for its commercial
production. In the impugned Award, this entire evidence has been
completely disregarded.
168. The learned Arbitrator has omitted to consider the
documents on record as well as the evidence which established that
RCF was using the GTGs as its primary source of power from April 2018
by using the same i.e. for 7644 hours for GTG-1 and 7827 hours for
GTG-2 and generating a total of 3,27,152 MWH of power between April
2018 and March 2019. The material on record which includes
correspondence between Siemens and RCF relied upon by Thermax
before the learned Arbitrator in relation to the operation of the GTGs,
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shows that it was RCF who had sent emails to Siemens on the
difficulties faced by it while commercially operating / running the plant.
It is the established fact that RCF was independently operating the plant
(without any supervision) long before the PAC was issued by them. The
learned Arbitrator has completely failed to consider and/or deal with
this aspect of the matter in the Award.
169. The learned Arbitrator has solely based her findings on
the aforementioned fundamental issue by taking shelter behind a
contractual provisions of PAC and the term "Taking over". This is
apparent from paragraph 34 of the impugned Award. This approach by
the learned Arbitrator is ex facie perverse. There is not even a
smattering of reason given by the learned Arbitrator for ignoring the
extensive evidence produced by Thermax in this regard.
170. In view of aforementioned issue being a fundamental
issue it was required to be determined not only on the contractual
provisions, but also on the evidence as well as the material documents
placed on record. The learned Arbitrator could not simply ignore
and/or disregard the same. It is evident from the material on record
that RCF had taken possession of and started using the plant as far back
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as April 2018 prior to the issuance of PAC on 15th March 2019. There is
merit in the submission of Thermax that Clauses 3(63) read with 3(50)
of GCC relating to 'take over', 'taking over' and 'taken over' and defining
'Preliminary Acceptance' were rendered completely irrelevant and
otiose. RCF having chosen to take over the plant and start using the
same for commercial purposes prior to the issuance of a PAC was no
longer entitled to contend that the date of taking over was the date of
the PAC. RCF had admittedly claimed depreciation on the plant for
the entire year, which makes it evident that RCF had itself chosen to
take over the plant without issuing a PAC as contemplated under the
Contract.
171. I do not find any merit in the submission of RCF that
Thermax had not raised the argument before the learned Arbitrator
that Clauses 3(63) read with 3(50) of GCC had been rendered
completely irrelevant and otiose. This is contrary to material on
record as well as evidence placed by Thermax before the learned
Arbitrator in support of this contention of Thermax.
172. RCF has with an attempt to support the impugned
Award called upon this Court to re-appreciate the evidence without
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dealing with the submissions made by Thermax in relation to
deficiencies in the Award.
173. It is Thermax's case that the reason for breakdown of
the GTGs was on account of faulty handling of the GTGs by RCF and
failure to comply with the O & M Manual. RCF had ignored several
numerous repeated warnings from the air intake filter alarms, i.e.
269 Filter Alarms in GTG-1 and 52 Filter Alarms in GTG-2, though
admittedly noticed by RCF and this was neither reported to
Thermax / Siemens nor did RCF take any action as per O & M
Manual to change the filters. The Final RCA opines that the real
cause for accumulation of dirt on blades of compressor was that the
filters were not changed on time. The Final RCA in its conclusion
stated that breakdown could have been avoided by washing the dirt
on the compressor blades in time. The learned Arbitrator inspite of
the material on record, has failed to consider and overlooked the fact
that air intake filter alarms was the primary alert mechanism to
indicate the problem in filtration and the condition of the filters. The
learned Arbitrator has in side-stepping the issue, placed reliance on
the fact that the compressor malfunction alarm had been incorrectly
configured.
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174. The learned Arbitrator by failing to deal with and/or
disregarding the evidence of Thermax in particular, the testimony of
RW-2 regarding the repeated warnings from air intake filter alarms,
makes the impugned Award vulnerable to being set aside under
Section 34 of the Arbitration Act on this ground.
175. RCF had not answered Thermax's arguments on failure
of RCF to take appropriate action upon noticing these filter alarms.
RCF has attempted to justify the same on the ground that this issue
had not been raised before the learned Arbitrator and was being
raised before this Court for the first time.
176. The material on record also establishes that at the
relevant time of breakdown of GTG-1, this could have been avoided,
if the plant had been shutdown immediately by RCF on instructions
of Siemens. It has been admitted by RCF's witness (CW-1) during his
cross-examination that it is possible to shutdown the plant within
half an hour. The only reason given by RCF for failure to immediately
shut down GTG-1, which would have prevented its breakdown, was
that on previous occasions also RCF had taken 24 - 48 hours to
shutdown the plant. This overlooks the fact that Siemens by its email
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on 21st March 2019 at 13:27 hours, had categorically instructed RCF
to "stop the unit immediately and wash it" . The argument that RCF
had stopped the plant within 24-48 hours of the Instructions of
Siemens on prior occasions could not be applied to a situation where
RCF was categorically informed to stop the unit "immediately" to
"prevent same events as that of GTG-2" . The learned Arbitrator has
not considered this aspect of the matter in the Award.
177. The learned Arbitrator has in the impugned Award
selectively relied upon the findings in the Final RCA to hold that the
GTGs were defective in nature. This overlooks the conclusion of the
Final RCA, viz. that dirt and most likely liquids entered into the
compressor causing the compressor to become so dirty that the blades
cracked due to high cycle fatigue causing the debris to damage other
parts of the compressor. The dirt on the blades was caused on account
of the filters not filtering the dirt and allowing dirt and salts to wash
through the filters and settle on the blades. Had the filters been
inspected and maintained periodically and replaced in time, the
breakdown of the GTGs could have been prevented.
178. The case of RCF before the Arbitral Tribunal was that
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the GTGs supplied to them were inherently defective in nature. RCF in
order to prove this defect, had produced the Shakti Report and had led
evidence of Mr. Jamula Sudhakar (CW-3), Director of Shakti, who was
co-Author of the Shakti Report. This was in order to establish that
the defect in the GTGs was on account of rubbing theory. However,
RCF abandoned and/or failed to prove the Shakti Report. In view
thereof, the learned Arbitrator should have held that RCF had failed
to establish that the GTGs supplied to them were inherently
defective.
179. The learned Arbitrator has mixed up the issues of
defect in GTGs with the breakdown in the GTGs. It was for the
learned Arbitrator to consider that RCF had by taking over the plant
from Thermax and putting it to use for commercial purpose for
approximately eleven months from April 2018 to March 2019 i.e. prior
to the issuance of the PAC, was incharge in control of the plant and by
its neglect in taking action on the filter alarms as per O & M Manual,
the breakdown of the GTGs is to their account.
180. The RCF has sought to supplement the inadequacy of
reasons of the learned Arbitrator. RCF has contended that Thermax had
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not investigated into the ambient air conditions at Thal site. This by
relying upon Clauses 14.4 and 14.5 of the Instructions to Bidders and
Clauses 4.1 and 6.1.2 of Technical Specifications. The Award makes no
mention and/or reference to these Clauses and/or considers the same.
Further, RCF has relied upon events that purportedly transpired on
27th February 2019, 28th February 2019 and 1st March 2019 and the
evidence of Mr. Michael Wood (RW-3) to contend that
Thermax/Siemens had not responded to RCF in respect of certain
problems faced by it while operating the plant. It is pertinent to note
that the Award does not make any reference to these dates/events and
thus, RCF is relying on material/evidence which does not form part of
the Award.
181. RCF also sought to refute the contention of Thermax that
Thermax had moved out from RCF's plant on 11th May 2018 barring
one site engineer by referring to the Counterclaim of Thermax for
overstay of personnel at site. The learned Arbitrator in the Award has
not arrived at any findings on this issue. There is no discussions /
findings in the Award on the issue of costs incurred by Thermax for
extended stay of manpower. This submission of RCF clearly travels
beyond the Award.
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182. The learned Arbitrator has not dealt with the 'Statement
of Agreed Variation' under which RCF was not allowed to start
commercial operation of the GTGs prior to the PG Test. The learned
Arbitrator has thus ignored vital evidence in the form of 'Statement of
Agreed Variation' .
183. RCF has sought to justify the categorical statement made
in their Annual Report for FY 2018-19 that GTGs were commissioned in
April 2018 and depreciation had been claimed for FY 2018-19 by
claiming that commissioning of the GTGs was at the stage prior to
commercial production and hence, the Annual Report for FY 2018-19
correctly mentioned that GTGs were commissioned in April 2018. This
justification / reasoning is conspicuously absent from the Award.
184. This Court under Section 34 of the Arbitration Act
cannot re-appreaciate the evidence placed before the learned Arbitrator
by a party. Under the provisions of Section 34 of the Arbitration Act
while deciding whether or not to set aside an award, the Court is only
concerned with the question with respect to whether the Arbitral
Tribunal has considered all relevant evidence, dealt with the same by
providing reasons in the award and/or whether the Arbitral Tribunal
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has disregarded/ignored certain vital evidence resulting in perversity in
the Award which amounts to a patent illegality. It is clear from a
reading of the impugned Award that the learned Arbitrator has
completely ignored and/or disregarded the submissions, and oral and
documentary vital evidence in support of these submissions. This results
in perversity in the Award which amounts to patent illegality. The
impugned Award is accordingly, liable to be set aside on this ground.
185. The learned Arbitrator has granted RCF damages to the
tune of Rs. 173.72 Crores. The learned Arbitrator has in paragraph 75
of the said Award given a finding to the effect that Mr. Shivkumar
Subramanian ('Shivkumar') / CW-2 had personal knowledge of the
figures that he had deposed. Shivkumar / CW-2 has relied upon the CA
Certificates to establish the claim regarding the cost of power, which
formed the basis of RCF's claim for damages. However, the evidence of
the Chartered Accountant was neither led nor the Chartered Accountant
produced for cross-examination.
186. RCF during the arguments before this Court purported to
contend that it did not rely upon the CA Certificates at all to prove its
claim. The learned Arbitrator has not recorded any such submission on
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the part of the RCF and the only finding recorded by the learned
Arbitrator as aforementioned is in paragraph 75 of the impugned
Award. The finding being that Shivkumar / CW-2 had deposed to these
figures on his personal knowledge as also on the basis of records of the
Claimant Company as maintained in the ordinary course of business
and his evidence is not shaken in cross-examination.
187. The learned Arbitrator has overlooked the fact that
Shivkumar / CW-2 has himself at multiple places in his evidence, and
even during the course of his cross - examination relied upon the CA
Certificates. RCF's entire case relating to adequacy of evidence to
support its claim for damages is now based on its contention that
Shivkumar / CW-2 had personal knowledge, which was adequate to
prove RCF's claim of Rs. 173.73 Crores. However, the claim made by
RCF and evidence led by its witness Shivkumar / CW-2 is on the
fundamental premise that the actual power requirement during 1st
April 2019 to 31st March 2020 was 3,50,669.64 MWH and that the
actual power requirement during 1st April 2020 to 30th November
2020 was 2,25,418.88 MWH. Except for the bare word of the witness
Shivkumar / CW-2, there is no evidence to corroborate these figures.
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188. Shivkumar / CW-2 claims that the figures have been
extrapolated from the SAP/ERP System maintained by RCF with
which he is "familiar". However, no supporting data from the
SAP/ERP System is produced to justify these claims. The learned
Arbitrator was thus expected to decide this claim only on the bare
statement of Shivkumar / CW-2 to the effect that the SAP/ERP System
contains the data that the witness claims to have seen. Further,
Shivkumar / CW-2 has relied upon what he calls "a certified copy of
Financial Claim Statement". The alleged certification of these financial
claim statements is based on the two Chartered Accountant
Certificates annexed to the Affidavit of Evidence dated 29th March
2021, of which RCF has now claimed that it does not wish to rely
upon.
189. In view of the submission now made by RCF that it does
not wish to rely on the CA Certificates, the references to the CA
Certificates in evidence is required to be disregarded. If this exercise is
undertaken, it will become all the more apparent that Shivkumar /
CW-2 had no personal knowledge that he claims to have and that his
evidence is completely insufficient to prove his claim. There is a failure
to provide the underlying documents evidencing the claim and this
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cannot be cured by leading the oral evidence of Shivkumar / CW-2.
Section 34 of the Evidence Act provides that entries in Books of
Accounts including those maintained in electronic form are not
sufficient to charge any person with liability. In this case the entries
have also not been produced.
190. The finding of the learned Arbitrator in paragraph 75 of
the impugned Award that Shivkumar's evidence "is not shaken in
cross-examination" is rendered without any supporting reasons and is
contrary to the answers given by Shivkumar / CW-2 during his cross
examination, which ex-facie shows that he has admitted his lack of
knowledge in relation to the claim. Thus, the learned Arbitrator by
accepting the evidence of Shivkumar / CW-2, has acted in an arbitrary
or perverse manner.
191. It is Thermax's contention that the claim for damages
on account of additional expenditure incurred on account of sourcing
power from alternate sources was either an "indirect" or a
"consequential" claim, which was expressly waived by the parties and
hence, the learned Arbitrator, being a creature of contract, was barred
from awarding the same. There is merit in this submission, considering
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Clause 32.2(a) of the GCC, which provides that a "Contractor shall, in
no circumstances, be liable in respect of any indirect or consequential
loss or loss of profit suffered by owner in connection with or arising
out of performance of Work under Contract.".
192. The cost incurred for purchasing of power in the
absence of power from the GTGs is consequential to the failure of the
GTGs. Under normal circumstances, applying Section 73 of Contract
Act, RCF could have claimed the said cost. Section 73 of the Contract
Act, 1872 reads as under :-
"73. Compensation for loss or damage caused by
breach of contract.-
1) When a contract has been broken, the party who
suffers by such breach is entitled to receive, from
the party who has broken the contract,
compensation for any loss or damage caused to
him thereby,
(a) which naturally arose in the usual course of
things from such breach, or
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(b) which the parties knew, when they made the
contract, to be likely to result from the breach
of it.
2) Such compensation is not to be given for any
remote and indirect loss or damage sustained by
reason of the breach."
193. Thermax and RCF had under Clause 32.2(a) of the GCC
expressly agreed for exclusion of certain categories of loss/damages,
from the ambit of Section 73(1). The "indirect loss" or "consequential
loss" in Clause 32.2(a) have been judicially interpreted to mean other
than and distinct/ different from "remote and indirect losses or
damages" , which are in any event, statutorily excluded under the
Indian codified law. The learned Arbitrator was called upon to
determine whether the contractual bar under Clause 32(2)(a) to grant
"indirect loss" or "consequential loss" was attracted. The learned
Arbitrator would firstly have to determine what would be the normal
measure of damages in a case like the present case; and secondly,
whether the claim for damages of RCF was beyond the normal
measure of damages and would therefore constitute an "indirect loss"
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or "consequential loss". The learned Arbitrator without determining
these issues, came to the conclusion that the claim of RCF fell within
Section 73(1) without examining the effect of parties excluding
"consequential" losses within the ambit of Section 73(1) by
incorporating Clause 32.2(a). I find much merit in the submission of
Thermax that Clause 32(2)(a) could never have been intended to
exclude what was anyways statutorily barred under Section 73(2).
194. The RCF by relying upon the decision of the King's
Bench Division in Saint Line Limited (supra) in support of their
contention that if the loss is direct, then it is not indirect or
consequential, has overlooked that whereas the law in India is codified
in Section 73 of the Indian Contract Act, 1872, the law being
considered in the Saint Line Limited (supra) case was based on
English common law dealing with a claim for damages.
195. Further, RCF's reliance on McDermott (supra) is also
misplaced since the Supreme Court did not consider the effect of an
exclusion clause, which excludes certain damages, which would
otherwise fall within Section 73(1). This judgment relied upon by RCF
is clearly distinguishable on facts.
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196. It has been held by the Supreme Court in Trojan
(supra), relied upon by Thermax, that damages due either for breach
of contract or for tort are damages which, so far as money can
compensate, will give the injured party reparation for the wrongful act
and for all the natural and direct consequences of the wrongful act.
Damages can only be the difference between the price which he paid
and the price which he would have received, if he had resold the
goods in the market forthwith after the purchase, provided of course
that there was a fair market then. In other words, the mode of dealing
with damages in such a case is to see what it would have cost him to
get out of the situation i.e. how much worse off was his estate owing
to the bargain in which he entered into.
197. The learned Arbitrator ought to have applied the
principle as laid down in Trojan (supra) that a party is entitled to
receive the normal measure of damages and which could have only
been the cost of repairs. The claim for additional expenditure on
account of power sourced from other sources cannot and would not
fall within the normal measure of damages. There has neither been
any consideration nor finding on this aspect by the learned Arbitrator.
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198. The attempt made by RCF to distinguish this judgment
is misconceived. The impugned Award insofar as it awards the claim
for Rs. 173.72 towards the additional expenditure allegedly incurred
by RCF, although falling within the exclusion clause is perverse and
patently illegal.
199. The Counterclaim of Thermax for refund of MAD, which
had unilaterally been deducted by RCF ostensibly under Clause 3(73)
read with Clause 31.1.3 of the GCC has been rejected by the learned
Arbitrator.
200. The findings of the learned Arbitrator overlooks the
emails and correspondence, wherein RCF itself had admitted that the
main steam line was made available only in February, 2018. As per the
baseline schedule, RCF was required to be provide the main steam line
by 31st August 2017. Thus, there was a delay of approximately 162
days on the part of RCF providing the main steam line.
201. The learned Arbitrator has failed to appreciate and
address the submissions of Thermax insofar as levy of MAD by RCF for
the alleged delay. It was Thermax's case that there was no delay on
the part of Thermax in completing the PG Test and MAD was
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accordingly, not leviable. These submissions and material documents
relied upon by Thermax in support thereof have not even been dealt
with by the learned Arbitrator. Given the fact that there was delay on
the part of RCF in provision of the main steam line, RCF cannot take
advantage of its own wrong and complain of delay by Thermax.
Accordingly, the finding of the learned Arbitrator that there was delay
of 444 days on the part of Thermax is perverse.
202. Thermax has accordingly, raised valid grounds of
challenge to the impugned Award under Section 34 of the Arbitration
Act. The failure on the part of the Arbitrator to give reasons for
rejecting the submissions of Thermax; the findings of the learned
Arbitrator based on no evidence; are all grounds for which the
impugned order is liable to be set aside. This is as per the settled law
laid down by this Court in Bhanumati Jaisukhbhai Bhuta (supra); the
Supreme Court in Ssangyong Engineering and Construction Company
Limited (supra) and Associate Builders (supra).
203. In view thereof, the Commercial Arbitration Petition is
allowed and the impugned Award dated 5th June 2023 is set aside.
204. RCF is directed to comply with the order of stay dated
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4th October 2023, in particular paragraph 7 of the said order and
refund the entire amount of Rs. 218,45,88,493/- deposited by the
Petitioner along with interest at the rate of 6% per annum within a
period of ten days from uploading of this Judgment and Order.
205. Commercial Arbitration Petition is accordingly, disposed
of. There shall be no order as to costs.
206. In view of disposal of the Commercial Arbitration
Petition, Interim Application (L) No. 23263 of 2023 does not survive
and is disposed of.
[R.I. CHAGLA, J.]
207. After this judgment and order has been pronounced, the
learned Counsel for the Respondent-RCF has sought for a stay of the
judgment and order in order for them to avail of their appellate
remedy.
208. Considering the application of Respondent-RCF, for a
period of four weeks, the undertaking given by RCF recorded in the
order of stay dated 4th October 2023 will not be given effect to.
[R.I. CHAGLA, J.]
