Calcutta High Court
Great Eastern Energy Corporation Ltd vs Srmb Srijan Ltd on 5 September, 2024
Author: Sabyasachi Bhattacharyya
Bench: Sabyasachi Bhattacharyya
In the High Court at Calcutta
Original Civil Jurisdiction
Commercial Division
The Hon'ble Justice Sabyasachi Bhattacharyya
EC/80/2023
[GA/2/2023]
GREAT EASTERN ENERGY CORPORATION LTD
VS
SRMB SRIJAN LTD
AP-COM/281/2024
[Old No: AP/833/2022]
IA NO: GA/2/2023
SRMB SRIJAN LIMITED
VS
GREAT EASTERN ENERGY CORPORATION LIMITED
For the Petitioner : Mr. Aspi Chinoy, Sr. Adv.,
Mr. Sakya Sen, Adv.,
Mr. A. Das, Adv.,
Mr. P. Roy, Adv.,
Mr. Akash Yadav, Adv.
For the respondent : Mr. Ratnanko Banerji, Sr. Adv.,
Mr. Sarvapriya Mukherjee, Adv.,
Mr. K. Kejiriwal, Adv.,
Mr. V.V.V. Sastry, Adv.,
Mr. D. Basu, Adv.,
Mr. D. Saha, Adv.
Hearing concluded on : 27.08.2024
Judgment on : 05.09.2024
Sabyasachi Bhattacharyya, J:-
1. The present challenge under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as "the 1996 Act") arises
out of an arbitral award passed in favour of the claimant/respondent
in an arbitral proceeding before a three-member Arbitral Tribunal.
The genesis of the dispute is a gas purchase and sale agreement
executed on May 11, 2011 between the petitioner SRMB Srijan
Limited (for short, "SRMB") and the claimant. By the said agreement,
the claimant was to supply Coalbed Methane Gas to SRMB till April
30, 2034. As per the said agreement, SRMB had to consume gas as
specified in the Minimum Guaranteed Offtake (MGO), else to
compensate the shortfall by paying for the entire amount of MGO.
Bank Guarantees were also furnished by SRMB to secure the MGO.
2. During subsistence of the contract, SRMB wrote to the claimant
seeking waiver of the MGO Clause. There was correspondence
between the parties. According to SRMB, consensus was reached
between the parties for the MGO to be waived, subject to increase in
the purchase price of gas to the tune of Rs. 5/- per SCM. The
claimant/respondent disputes the same, arguing that there was no
concluded contract to that effect.
3. Subsequently, proceeding on the premise that MGO had been waived,
SRMB stopped renewing the bank guarantee which was, according to
the agreement, subject to continued renewal by SRMB.
Consequentially, the claimant suspended gas supply upon giving
notice to SRMB due to such non-renewal of bank guarantee.
4. On July 7, 2014, alleging stoppage of gas supply, the agreement
between the parties was terminated in writing by SRMB.
5. The claimant/respondent invoked the arbitration clause in the
agreement. Ultimately, upon hearing both sides, the Tribunal passed
an award declaring that the termination by SRMB was bad and that
the agreement between the parties was subsisting. The claim of
specific performance was denied; however, permitting the claimant to
remove its underground gas pipelines from the premises of SRMB
upon seven days‟ clear notice. The petitioner/SRMB was also directed
to pay to the claimant a sum of Rs. 58,50,45,169/- together with
interest at the rate of 7 per cent per annum from February 2015 till
the date of the award within a period of twelve weeks from the said
date. In default, SRMB was to pay an additional interest of 9 per cent
per annum on the total amount of principal plus interest from the
date of default till the date of actual payment. Costs were not granted.
The counter claims of SRMB were also refused.
6. Being aggrieved with the same, the present application has been filed
by the petitioner, who was the respondent in the arbitral proceeding.
7. Learned senior counsel appearing for the petitioner assails the finding
of the Tribunal that the exchange of correspondence between the
parties between April 22, 2014 and May 29, 2014 did not culminate in
an agreement to waive the MGO Clause on SRMB agreeing to pay the
enhanced price of Rs. 5/- per SCM of gas.
8. It is argued that the said findings and the conclusion based thereon
are ex facie perverse and tainted by patent illegality. Furthermore,
being beyond the pleadings of the parties, such conclusion is without
jurisdiction. Also, the said findings disclose an error of law apparent
on the face of the award, thus vitiated on the ground of patent
illegality.
9. Learned senior counsel appearing for the petitioner takes the court
painstakingly through the correspondence between the parties.
According to counsel, the letter dated April 24, 2014 comprised of the
offer by the respondent to consider the petitioner‟s request of waiver of
the MGO Clause upon increase of the price by Rs. 5/- per SCM and
SRMB‟s letter dated May 29, 2014, constituted the acceptance thereof,
thus giving rise to a concluded contract between the parties for waiver
of the MGO Clause on increase of the price by Rs. 5/- per SCM.
10. In support of such contention, learned senior counsel cites Stevenson
Jacques & Co vs. MC Lean, reported at (1880) V5 QBD 346 and Gibson
vs Manchester City Council (HL), reported at (1979) WLR 294 which
laid down the proposition that if there is nothing specific by way of
offer or rejection but a mere inquiry and/or an exploratory exercise
regarding possibility of reduction of price, the same cannot constitute
a repudiation of the offer. In the present case, the Tribunal, it is
argued, proceeded on the premise that the acceptance of the
claimant‟s offer by SRMB was actually a counter offer, based on the
premise that the previous exploratory exercise by letters on behalf of
SRMB regarding reduction of price was a full-fledged repudiation.
Such finding of the Tribunal, thus, is perverse.
11. Learned senior counsel appearing for the petitioner next points out
that even as per the pleading in the Statement of Claim (SoC), the
petitioner‟s letters dated May 16 and May 19 were referred to by the
respondent as "requesting the Claimants to reconsider the waiver of
MGO". Again, in Paragraph 14 of the SoC, the claimant had referred
to the letter of SRMB dated May 29, 2014 as an acceptance of the
proposal of the respondent to enhance the price by Rs. 5/- per SCM to
waive the MGO Clause. Thus, even as per the pleadings of the
respondent, there was a concluded offer and acceptance giving rise to
a contract between the parties. It is submitted that there was
absolutely no pleading, averment or case made out by the parties to
the effect that the letter dated May 29, 2014 was not a valid
acceptance of the claimant‟s offer dated April 24, 2014 or that it
constituted a counter offer of the petitioner/SRMB.
12. The findings in the award regarding there being a "counter offer" and
"unambiguous rejection" of the claimant‟s offer are perverse, giving
rise to the ground of patent illegality as contemplated in Section 34(2-
A) of the 1996 Act.
13. In continuance of the first limb of his arguments, learned senior
counsel for the petitioner next contends that the conclusion of the
impugned award that the petitioner‟s termination of the gas purchase
agreement by its notice dated July, 7, 2014 was wrongful, is also
perverse. The claimant had informed the petitioner that from July 6,
2014, supply of gas to the petitioner would be permanently suspended
in view of the petitioner‟s refusal to renew one of the bank guarantees.
In view of the MGO Clause having already been waived, as argued
previously, there was no occasion for renewal of the bank guarantee
by the respondent/petitioner. Thus, there was no basis of such
permanent suspension, justifying the termination of the contract by
the petitioner SRMB.
14. Learned senior counsel argues that although a short notice was given
before termination of the contract, thereby deviating from the
provisions of the agreement itself, notwithstanding the absence of any
contractual clause enabling such termination on the ground of non-
supply of gas, the petitioner was entitled to terminate the agreement
under Section 39 of the Contract Act, as the claimant had
communicated its intention to permanently suspend gas supply from
July 6, 2014, which constituted a refusal by the claimant to perform
its obligations under the agreement.
15. Learned senior counsel next argues that the award of
Rs.58,50,45,169/- as damages for breach of the MGO Clause from
July, 2014 is ex facie perverse and vitiated by patent illegality, being
based on no evidence of any loss or damage suffered by the claimant.
16. The award, it is submitted, fails to advert to relevant materials and
evidence produced by the petitioner which in fact established that the
claimant was able to sell/allot the gas meant for the petitioner to third
parties and, thus, suffered no loss or damage. The award of damages
is perverse, being based on no evidence whatsoever.
17. The Tribunal proceeded on the premise of the recording in paragraph
41 of the CCI Judgment, in a proceeding initiated by an
employee/associate of the petitioner before the CCI impugning the
various clauses of the gas purchase agreement, to the effect that the
claimant/respondent has had to flare up to 28.48 per cent of the gas
produced in 2015-2016 as it had no market for the same in the face of
competing products. The impugned award holds that these findings of
fact were affirmed by the High Court at Delhi.
18. It is argued by the petitioner that Paragraph 41 of the CCI
observations did not refer to any loss or damage caused to the
claimant by the alleged breach of the MGO Clause but was merely a
general observation. Thus, such findings were not conclusive within
the contemplation of Section 61 of the Competition Act, 2002 as
erroneously held by the Arbitral Tribunal.
19. That apart, the percentage of gas produced by the respondent being
flared in 2015-16 is not relevant, nor does it establish that the
claimant was not able to supply the contracted quantity of gas to
other parties after termination, which is the determinative test for
considering whether the termination has resulted in any loss or
damage to the claimant.
20. Since the seller/respondent, even after termination of the contract,
was able to sell the contracted goods to third parties, there could not
have been any loss or damage suffered by the seller.
21. The award relies on the judgment of the Delhi High Court dated
October 10, 2019 which itself holds that the quantity of gas which was
earlier supplied by the claimant to SRMB was, after termination of the
contract, being supplied by the claimant to other purchasers. The
Delhi High Court records that it is nobody‟s case that gas could not be
supplied to other consumers and that the fact that the quantity of gas
which was earlier supplied to SRMB was, after termination of the
contract, being supplied to other purchasers, does not in any manner
render Clause 5.2A of the agreement unfair or discriminatory.
22. Thus, the award is also perverse on such count, being contrary to the
findings of the Delhi High Court.
23. The documents produced by the petitioner which show that the flaring
of gas decreased after the termination of contract was not considered
by the Tribunal. Further, it is argued by the petitioner/SRMB that the
Tribunal declined to refer to the material evidence on such count on
the premise that SRMB had neither referred nor disclosed those
materials.
24. However, in the Statement of Defence (SoD), the petitioner denied the
averment in the SoC that any loss or damage had been suffered in
respect of the MGO or any amount was payable as quantified at the
MGO from 2014 to 2034. The aforesaid pleading in the SoD enabled
the petitioner/SRMB to produce evidence in the form of the returns
filed by the claimant before the Directorate General of Hydrocarbons
to show that no loss or damage had been suffered by the claimant
post-termination of the agreement in July, 2014.
25. The Tribunal completely ignored the evidence adduced by the
petitioner, particularly the Reports authored by the CRISIL and CARE,
being credit rating agencies engaged by the claimant to show that the
claimant‟s customers and business had improved considerably post-
determination of the contract.
26. It is also contended that the agreement dated May 11, 2011 was
executed in violation of an order dated March 18, 2011 passed by the
PNGRB and the order passed by the Delhi High Court on March 25,
2011. In such context, learned senior counsel for the petitioner cites
Surjit Singh v. Harbans Singh, reported at (1995) 6 SCC 50, Bijali
Naskar v. Amalendu Saha, reported at 1999 SCC OnLine Cal 204 and
Delhi Development Authority v. Skipper Construction Co. (P) Ltd.,
reported at (1996) 4 SCC 622.
27. The petitioner contends that the gas purchase agreement is thus
vitiated by fraud and misrepresentation as it suppressed Show-Cause
Notices dated December 3, 2010 and December 15, 2010 directing the
claimant/present respondent to stop any incremental activity with
immediate effect till the matter was decided by the PNGRB. The order
dated January 4, 2011 passed by the Delhi High Court directing the
implementation of the notice dated December 3, 2010, that is, for
stopping any incremental activity, was also overlooked.
28. Laying of the pipeline for supply of gas to the petitioner in violation of
the orders of court also amounted to fraud, which can be of infinite
variety, as it has not been straight jacketed by the definition in
Section 17 of the Indian Contract Act. In support of such contention,
learned senior counsel for the petitioner SRMB cites SEBI vs.
Kanaiyalal Baldevbhai Patel, reported at (2017) 15 SCC 1. Also, the
agreement, being induced by fraud, was clearly voidable by the
petitioner simpliciter on the ground of fraud. To bolster such
argument, the petitioner cites Venture Global Engineering vs. Satyam
Computer Services Limited & Anr., reported at (2010) 8 SCC 660.
29. In reply, learned senior counsel for the claimant/respondent cites
Ssangyong Engg. & Construction Co. Ltd. vs. NHAI, reported at (2019)
15 SCC 131 and Govt. of NCT of Delhi vs. Shonk Technologies
International Ltd. & Anr., reported at 2023 SCC OnLine Del 8323 to
contend that the scope of interference by the court under Section 34
of the 1996 Act is limited to grounds mentioned in the said Section
itself. There are three stellar guiding principles. First, the court does
not sit in appeal over the decision of the Arbitral Tribunal. Secondly,
in the absence of patent illegality, the interpretation of the contract by
the Arbitral Tribunal and its conclusion, arrived at by appreciation of
evidence, is impervious to interference. Re-appreciation of evidence is
not permitted under the ground of patent illegality. Thirdly, the
Section 34 court does not embark on its own exercise of interpreting
the contract and the court cannot interfere with the award merely
because it feels that a different interpretation is possible. In the
present case, it is argued, none of the said tests are met.
30. Learned senior counsel for the claimant/respondent argues that it will
be evident from the correspondence between the parties that the MGO
Clause was never waived by the claimant. The Tribunal, after due
appreciation and consideration of all correspondence exchanged
between the parties, including the judgments cited by both parties as
also various provisions of the Contract Act, 1972, came to the
conclusion that the MGO was not waived or novated. Such finding is
supported by settled law that a contract cannot be formed without an
unambiguous acceptance of an offer, as held in Padia Timber Co. (P)
Ltd. v. Board of Trustees of Visakhapatnam Port Trust, reported at
(2021) 3 SCC 24.
31. The petitioner‟s argument that the findings of the Tribunal are de hors
the pleadings in the arbitral proceeding is also incorrect. All the
letters have been narrated in the SoC. The allegation of
modification/novation of the MGO Clause came about for the first
time in the SoD, which was duly dealt with by the claimant in its
rejoinder before the Tribunal.
32. Learned senior counsel appearing for the claimant/respondent argues
that the facts of the present case are unlike those of Gibson's case and
Stevenson‟s case and more in the lines of the judgment in Hyde v.
Wrench (3 Beav. 334), which has considered in both the judgments.
33. The claimant/respondent next argues that the relevant contractual
provisions of the Gas Purchase Agreement are contained in Clauses
2.0, 5.1, 11.1, 11.4 11.5 and 15, which provide the specific scenario
under which either party may terminate the agreement. Admittedly,
none of such events arose to give right to SRMB to terminate the
contract. Thus, the termination is contrary to the contract. Knowing
the same fully well, the petitioner has relied on Section 39 of the
Contract Act.
34. However, as per Clause 11.5 of the agreement, SRMB was required to
submit a revolving confirmed bank guarantee which was to remain in
place for the amount of the contracted quantity for one month.
Admittedly, such bank guarantee had expired and SRMB had failed to
renew the same. In view of such failure, the claimant issued a notice
on July 2, 2024, recording SRMB‟s default of the terms of the
agreement in failing to renew the same and further giving three day‟s
notice of discontinuance of the supply of gas. This notice dated July
2, 2014 was pursuant to leave granted by this Court by an order
dated July 1, 2014.
35. SRMB, in its notice of termination dated July 7, 2014, did not urge or
contend that it was terminating the agreement for any repudiatory
breach commited by the claimant. Even in the pleadings of the SRMB
in its SoD, no case has been made out as to how any repudiatory
breach has been committed by the claimant/respondent which
disabled it from performing its promise in the contract in its entirety.
36. To come within the scope of Section 39 of the Contract Act, SRMB was
required to aver and prove that the breach goes to the root of the
contract. However, there is no such averment or proof on record.
37. The Tribunal dealt with the issue and observed that the suspension of
gas for three days with prior notice in the event SRMB does not renew
the bank guarantee does not go to the root of the contract.
38. Hence, the argument on Section 39 of the Contract Act is not tenable
in the eye of law.
39. The petitioner now seeks this Court to re-appreciate the evidence,
which is not permissible under Section 34 of the 1996 Act.
40. Next dealing with the argument of SRMB that the finding of the
Tribunal on the quantum of damages is based on no evidence and/or
in ignorance of vital evidence, learned senior counsel for the
claimant/respondent argues that the Tribunal unequivocally held that
the agreement is valid and subsisting till April 30, 2034 and that
SRMB had breached the agreement and wrongfully terminated the
same. Considering the nature of the contract, the Tribunal refused to
grant specific performance but observed that the claimant still has a
right to recover compensation in the form of damages for the loss or
benefit that it would have received had the agreement survived and
continued for its full term, that is, till April 30, 2034.
41. The contention of SRMB that no loss or damage has been suffered by
the respondent due to such illegal termination is palpably wrong.
42. The Tribunal relied on the factual finding of the CCI dated February
11, 2017, which was affirmed by the Delhi High Court by its order
dated October 10, 2019, to the effect that the claimant had to flare up
28.48 per cent of the gas produced in 2015-2016 as it had no market
for the same after SRMB had terminated the contract in July, 2014.
43. Learned senior counsel for the claimant/respondent argues that
admittedly, post-termination of the agreement, the claimant had to
flare up gas. The contention that the gas being supplied earlier to
SRMB was sold to others was also contended before the Delhi High
Court but was turned down in Paragraph No. 53 of the said judgment.
The very fact that the gas had to be flared up ipso facto means that
there was no buyer for the same and had the claimant supplied gas to
SRMB, such gas would not have had to be flared up. Thus, flaring up
of gas is itself the proof of loss.
44. In Paragraph No. 41 of the CCI Order, it is noted that the claimant
had made huge capital investment inter alia for licence/lease for
exploration of gas and for setting up the pipelines and infrastructure
for distribution of gas among others. To recover such capital
investment and to cover the risk of the seller of the gas, the global
practice is long-term supply contracts to be executed with a
commitment to buy a fixed quantity on a long term basis. This being
the very basis of the MGO Clause for the entirety of the contract
period, the illegal early termination also causes a direct actual loss. It
is incorrect to presume that the claimant has a fixed production of gas
and it is no one‟s case that it could not have increased its production
to supply more customers. Even the chart relied upon by the SRMB
shows that every year production has gone up. The claimant is
entitled to the lost revenue from SRMB, the minimum whereof is as
stipulated in the MGO value. Moreover, the Tribunal has awarded
only 15 per cent of the MGO value.
45. The Tribunal in fact considered the returns filed before the Directorate
General of Hydrocarbons, Ministry of Petroleum and Natural Gas and
after due consideration held that even then it shows from the chart
produced by the SRMB that there is flare-up.
46. The Tribunal, it is argued, took note of all the relevant judgments of
the Supreme Court where it was held by the Supreme Court that the
liability of the consumer to pay minimum charges continues even after
supply was disconnected and, taking guidance from the judgments in
Md. Salamatulla & Ors. Vs. State of Andhra Pradesh, reported at (1997)
3 SCC 590, M/s A.T. Brijpaul Singh & ors vs. State of Gujarat, reported
at (1984) 4 SCC 59 as well as MSK Project vs. State of Rajasthan,
reported at (2011) 1 SCC 573, assessed 15 per cent of the amount
claimed as damages.
47. The claimant also cites the following judgments in support of its
proposition that it is fair to assess future loss or profit expected to be
obtained from a wrongfully terminated contract based on guesswork:
Dwarka Das vs. State of M.P. & Anr., reported at (1999) 3 SCC 500,
Gemini Bay Transcription Pvt. Ltd. vs. Integrated Sales Service Ltd. &
Anr., reported at (2022) 1 SCC 753, Crest Education Pvt. Ltd. vs. Career
Launcher (I) Ltd., reported at 2023 SCC OnLine Del 3801 and Govt. of
NCT of Delhi vs. Shonk Technologies International Ltd. & Anr., reported
at 2023 SCC OnLine Del 8323.
48. Hence, the finding of the Tribunal on the quantum of damages is
based on appreciation of evidence, interpretation of the agreement, the
decision of the CCI and the Delhi High Court as well as established
precedence of the Supreme Court of India while assessing future loss
of profit of the claimant. Thus, it is argued that there is no scope of
interference and the present challenge ought to be dismissed.
49. Upon hearing learned counsel for the parties, the court comes to the
following conclusions:
50. The plinth of the case of SRMB/petitioner is that there was a
concluded contract between the parties on waiver of the MGO Clause
upon consequential increase of the purchase price by Rs. 5/- per
SCM. The pillars of such argument are two letters - the letter dated
April 24, 2014 by the claimant and the letter dated May 29, 2014 by
SRMB/petitioner. According to the petitioner, the said two letters
constituted an offer and acceptance respectively, thus giving rise to a
concluded contract between the parties regarding waiver of MGO.
51. However, the said letters cannot be seen in isolation but have to be
read in proper context. During the relevant period, there were several
correspondences between the parties. The Tribunal took into
consideration the entire body of correspondence and disbelieved the
case of the petitioner/SRMB on such count.
52. On April 22, 2014, SRMB wrote to the claimant/respondent for the
first time with a request to waive off the MGO Clause with immediate
effect. The letter issued by the claimant on April 24, 2014, touted as
an independent "offer" by the petitioner, was actually in reply to the
petitioner‟s letter dated April 22, 2014. Importantly, in the
communication of April 24, 2014, the claimant gave out that in view of
the long-term business relations between the parties, as a special
case, the claimant "may" consider SRMB‟s request "only if", in clause
10 of the contract, there will be an increase of price of Rs. 5/- per
SCM on the current price of Rs. 21/- excluding VAT. The two key
words in the above letter are "may" and "only if", which go on to
indicate that the same was not an unqualified offer but retained with
the claimant a discretion to accede or not to accede to the request of
waiver of the MGO Clause, subject to further response from the
respondent/petitioner. Furthermore, the same was qualified with the
rider that such request of SRMB would be considered "only if" SRMB
acceded to the increase in price by Rs. 5/- per SCM, leaving no scope
for further negotiation.
53. The reply to the claimant‟s "offer" letter dated April 24, 2014 was sent
by SRMB on May 16, 2014, much prior to its letter dated May 29,
2014. In the May 16, 2014 letter, SRMB requested the claimant not to
press for such "unreasonable increase" which would affect the
business of SRMB adversely. SRMB further requested the claimant to
review its decision towards withdrawal of the MGO Clause
"unconditionally". SRMB further continued that in the absence of
such unconditional withdrawal ("or else") it is becoming very difficult
to carry out business in compliance of the said agreement.
54. Hence, even if the letter dated April 24, 2014 could be treated to be a
proposal/offer by the claimant, SRMB refuted the same. In view of the
rider in the letter dated April 24, 2014 that the claimant may consider
waiver of MGO only if SRMB agreed to the enhancement of price, the
reply of SRMB not agreeing to such enhancement and seeking a
review, by labelling the enhancement "unreasonable", clearly
tantamounted to repudiation of the offer given by the claimant in its
letter dated April 24, 2014. SRMB‟s letter date May 16, 2014 has
been sought to be made out as mere negotiation, of an exploratory
nature, for reduction of the price. However, the increment in price
component being a non-negotiable rider to the offer, as made clear by
the expression "only if" in the offer letter dated April 24, 2014,
repudiation of such increase could not merely be brushed off as
„reduction in price‟ but amounted to refusal to accept the soul of the
offer, which was a non-negotiable pre-requisite of such offer.
55. Even in its subsequent letter dated May 19, 2014, SRMB reiterated its
stand and went one step ahead, seeking not only a waiver of MGO but
a reduction of the base price current market price. Hence, SRMB
reiterated its stand by the letter dated May 19, 2014, read with that
dated May 16, 2014, giving out that it not only repudiated the
enhancement of price, which was the cardinal and non-negotiable
premise of the offer dated April 24, 2014, but went one step further in
seeking a reduction in the price.
56. Hence, as on May 19, 2014, the offer given by the claimant on April
24, 2014 already stood conclusively repudiated and refuted by SRMB
beyond revival.
57. The saga does not stop there. In its letter dated May 23, 2014, the
claimant/present respondent clearly communicated to SRMB that the
latter‟s proposal in the letter dated May 19, 2024 was not acceptable
to the claimant. A further counter offer was given by the claimant for
reduction of the MGO from 80 per cent to 75 per cent provided all
other terms and conditions of the agreement remain intact, thereby
reiterating that it stands by the continuation of the MGO
Clause, thus leaving no manner of doubt that the original offer to
waive the MGO Clause on increase of price was no longer alive.
58. Hence, much before May 29, 2014, the chapter which was opened by
the letter dated April 24, 2014 had been closed.
59. By way of clever drafting, in its letter dated May 29, 2014, SRMB
sought to revive the offer dated April 24, 2014 by purportedly
"accepting" the same.
60. It is not the law that after an offer has been repudiated and becomes
deadwood, the same can be revived at any point of time by the offeree
by arbitrarily choosing a prior date when the offer was made to "accept
the same", even after much water has flown and the parties have
irreconcilably repudiated the offer. By several letters in between,
SRMB had already repudiated the essential terms of the offer, upon
which the claimant had closed the offer unambiguously. Hence, as on
May 29, 2014, the offer dated April 24, 2014 was not alive any longer
for it to be „accepted‟ by SRMB.
61. Thus, there could not arise any occasion for „acceptance‟ of an already
dead offer on May 29, 2014. Thus, the correspondence which ensued
thereafter between the parties from May 29, 2014 could only be
construed to be a de novo exercise of offers and counter offers between
the parties. Hence, the basis on which the Tribunal held that there
was a counter offer subsequently cannot be faulted in any manner.
62. Learned senior counsel for the petitioner has hinted that the Tribunal
made out a third case contrary to the pleadings with regard to the
dates of the offer and acceptance.
63. A careful perusal of the SoC shows that the pleadings therein do not
in any manner comprise of an "admission on the part of the claimant"
regarding the letter dated April 24, 2014 being „The‟ offer and that
dated May 29, 2014 being its acceptance. The statements made in the
SoC were bald statements, merely narrating the contents of the said
documents as they stood and was not any commentary on the stand
of the petitioner on the same. A complete reading of the entire SoC
clearly shows that the claimant all along denied there being any
agreement for waiver of MGO. In fact, as on the date of filing of the
SoC, there was no SoD on record at all. The case sought to be made
out by SRMB regarding there being a concluded contract for waiver of
MGO was made out first in the SoD. Hence, there was no occasion for
any admission of such case by the claimant prior to the SoD being
filed, in its SoC.
64. In fact, the claimant, in its rejoinder to the SoC, categorically denied
the contentions made in the SoD and clearly pleaded the relevant
facts, which were the premise of the Tribunal‟s findings in that regard.
Hence, the third-case argument cannot be accepted at all.
65. As per the above discussion, even a careful scrutiny of the
correspondence between the parties reveals that there was no „Aha‟
moment, when the parties were ad idem on the waiver of MGO, giving
rise to a concluded contract on such count.
66. Hence, the findings of the Tribunal in that regard are perfectly
justified.
67. Also, importantly, the Tribunal interpreted the correspondence in a
particular manner which is perfectly plausible in law and on the facts
of the case. The proviso to Section 34(2-A) of the 1996 Act clearly
precludes the court from coming to the conclusion of patent illegality
by re-appreciation of evidence. Even if the court were of a different
opinion than the Tribunal on the issue of waiver of the MGO Clause,
the court ought not to come to the conclusion that there was patent
illegality, by substituting its own view for that of the Tribunal.
68. Thus, this Court finds no scope or occasion of interference with the
finding of the Tribunal that there was no waiver of the MGO Clause
between the parties at any point of time.
69. The next question which falls for consideration is whether the
termination of the contract by SRMB was unlawful. Such termination
is admittedly de hors the four corners of the agreement. The relevant
provision for termination contemplate prior non-supply for three
months, as stipulated in Clause 5.1, which period was admittedly not
given by SRMB.
70. Clause 4.2 gives the seller an option to stop supply of gas to the buyer
without any notice when an emergency and/or safety issue arises;
otherwise a week‟s notice was to be given by the seller to the buyer to
rectify the defects in arrangement or gas using equipments, the
decision with respect to which shall be that of the seller alone.
Notwithstanding the stoppage of supply as aforesaid, the buyer was to
continue to be liable to pay for the MGO of gas in accordance with
Clause 5.2 irrespective of the stoppage of gas supply on account of
defect or unsafe operation in the buyer‟s intake arrangements or gas
using equipment.
71. Clause 5.2 provided for the MGO and the formula for calculating the
same.
72. Thus, the MGO Clause was to operate throughout, even irrespective of
emergency stoppage of gas supply.
73. Clause 11.5 of the Agreement mandated that the buyer shall submit a
revolving confirmed Bank Guarantee which will always remain in
place for the amount of the contracted quantity for one month. In case
of shortfall, the buyer would have to pay the same to the seller
immediately on demand. This required the buyer to keep the Bank
Guarantee in place by renewing it from time to time.
74. In the present case, due to such non-renewal, the claimant give a
notice to SRMB on July 2, 2014, recording SRMB‟s default in
renewing the bank guarantee, giving three days‟ prior notice for
discontinuance of supply of gas due to such non-renewal. Such
notice was not only pursuant to the leave granted by this Court by an
order dated July 1, 2014, the same was also within the contemplation
of the agreement itself.
75. Upon non-compliance of the same, the gas supply was terminated.
76. Instead of renewing the bank guarantee, which would have revived the
gas supply, SRMB chose to avoid such renewal by issuing a notice of
termination on July 7, 2014. There was no averment in the notice
dated July 7, 2014 as to any repudiatory breach being committed by
the claimant. The said notice was also palpably de hors the provisions
of the agreement.
77. Upon having chosen to agree on particular terms of the agreement
regarding termination, it was not open to SRMB to terminate the
contract de hors such provisions. Hence, the termination was
palpably bad, being de hors the provisions of the agreement.
78. The reliance sought to be placed by SRMB on Section 39 of the
Contract Act is merely an afterthought. Section 39 does not override
the specific terms of an agreement between the parties. Even taken
for whatever it is worth in the present context, Section 39
contemplates a termination only when the breach goes to the root of
the contract. The Tribunal considered such factor and observed that
suspension of gas supply for three days with prior notice in the event
SRMB does not renew the bank guarantee did not go to the root of the
contract. As such, the provisions of Section 39 of the Contract Act
were held to be not applicable, which conclusion is perfectly justified
in the circumstances of the instant case. Hence, in the teeth of non-
compliance of the specific termination clause in the arbitration
agreement by the respondent/present petitioner, Section 39 of the
Contract was not attracted at all, more so since there was no breach
on the part of the claimant at all, let alone the breach going to the root
of the contract.
79. Hence, the award, to the extent that the termination was bad is also
justified, since the non-renewal of bank guarantee by SRMB was
entirely unilateral, de hors the contract and contrary to law.
80. The last component of argument of SRMB/petitioner is that there was
no evidence of loss to justify the award of damages.
81. However, the Tribunal categorically relied on the order passed by the
CCI (the conclusion of which was ultimately affirmed on merit by the
Delhi High Court) where it was observed that the claimant had to flare
up 28.48 per cent of the gas produced in 2015-2016, that i,s after the
illegal termination of the agreement by SRMB.
82. The Delhi High Court, in a somewhat different context, held that it
was nobody‟s case that gas could not be supplied to other consumers.
In such backdrop, it was observed that it was not the case of SRMB
that if customers are available requiring gas at a particular point of
time, gas available to the claimant would not be supplied to them.
The MGO liability, it was held, was only to mitigate the risks in
committing to a long-term supply and that the fact that the quantity
of gas which was earlier supplied was, after termination of the
contract, being supplied to other purchasers does not in any manner
render Clause 5.2 of the agreement unfair or discriminatory.
83. Hence, it was not a conclusive finding nor was the court so called
upon to decide on merits on the issue as to whether the gas earlier
supplied to SRMB was being supplied to others. The premise of
Paragraph 53 of the Delhi High Court judgment was merely that it was
nobody‟s case that gas could not be supplied to others and even if
there was such supply after termination of the contract, it does not
render Clause 5.2 unfair or discriminatory. The said observation
cannot be blown out of proportion but has to be read in its context.
Rather, it was the categorical finding of the CCI order, which was
affirmed by the Delhi High court on merits, that there was 28.48 per
cent flare-up of the gas produced subsequent to termination of the
contract, which was a specific and precisely enumerated value of such
flare-up.
84. Even otherwise, if we proceed on the basis of the CRISIL Report and
the CARE Report as well as the documents filed by SRMB which, if
assumed to go on to show that there was almost equivalent flare-up of
gas even after termination of the contract as there was before, the
same does not help SRMB in any manner.
85. The premise of the MGO Clause is not an actual occasion of loss
suffered by the supplier. It is a prevalent practice in such long-term
contracts for supply of energy, by way of electricity, gas, etc. to
introduce a minimum consumption clause, which is in the nature of
an assurance to the supplier that the huge investment in grid and
other infrastructure for supply to consumers, which is undertaken by
such supplier, is justified by long-term supply. Premature termination
would not only entail loss of the minimum guaranteed amount, which
is the MGO value in the present case, but also may be detrimental to
the maintenance of the supply grid itself.
86. Also, it is irrelevant whether the same amount of gas as consumed
before by SRMB was flared up even after termination of the contract
with SRMB. As long as there was even a small amount of flare-up, it
would indicate that at least some of the gas produced by the supplier
is not used up. It is not a relevant question whether the gas
earmarked for the consumer (SRMB) was being supplied to some other
consumer, since supply to one consumer is not mutually exclusive
with supply to some other. It may very well be that the supplier
enhances its infrastructure and/or on the basis of the same
infrastructure caters to more consumers, thereby increasing its
earnings. Even if SRMB was continued to be supplied with gas, it was
open for the claimant/supplier to increase its supply and/or to
maintain its previous supply and go on supplying gas from its
network/grid to other new consumers, which would fetch more profits
to the supplier. There was no exclusivity clause in the agreement
between the parties, restricting supply only to SRMB. Hence, even if
the claimant went on supplying to others over and above the quantity
supplied to SRMB, it would have earned more profit, to which there is
no bar.
87. Thus, as long as there is even a wee bit of flare-up of gases, there is a
wastage of gas produced by the supplier and, consequentially, there
cannot be any dilution of the MGO loss suffered by the supplier.
Theoretically, after the termination, the supplier might have started
supply to new consumers. Even then, as long as the entire amount of
produced gas was not exhausted, the supplier would continue to
suffer loss due to termination of the contract for the particular
amount of gas which was to be supplied to SRMB. It is not that the
gas earmarked for SRMB is being supplied to others. The claimant is
a producer of gases and can very well supply to many other
consumers than SRMB.
88. Hence, the argument of SRMB linking the quantum of post-
termination flare-up of gases to absence of loss is irrational and not
acceptable. Even if the flare-up remained the same, the supplier
suffers loss to the extent of the MGO amount as long as there is flare-
up of any amount.
89. Hence, such argument of SRMB/petitioner is specious but not
acceptable.
90. The concept of MGO, in any event, is to provide certainty to the
supplier and to ensure that the grid infrastructure installed on the
basis of a long-term supply agreement is utilised to the full, which
would justify the infrastructure and maintenance expenses of the said
supply grid as well. It acts as a long-term insurance to cover the
infrastructure and allied expenses and does not necessarily require
proof of actual future loss as such. The rudiments of such future loss
are embedded in the MGO Clause of the agreement itself, which has
been wrongfully terminated by the present petitioner.
91. Hence, on a comprehensive perusal of the impugned award, I am
unable to find any infirmity or illegality in the same.
92. In view of the above discussions, the petitioner‟s arguments on
perversity and patent illegality do not cut ice at all.
93. Ssangyong Engg. (supra) as well as Govt. of NCT of Delhi (supra) have
clearly enumerated the parameters of interference under Section 34.
In the guise of patent illegality, the court cannot re-appreciate
evidence, as per the proviso to Section 34 (2-A) of the 1996 Act. This
Court is not sitting in appeal over the decision of the Tribunal and in
the absence of patent illegality, the court cannot enter into an exercise
of re-appreciation of the evidence and/or interpreting the contract in a
different manner than the Tribunal according to its whims.
94. Thus, the present challenge fails.
95. Accordingly, AP-COM 281 of 2024 [Old No: AP 833 of 2022], along
with GA 2 of 2023, is dismissed.
96. EC 80 of 2023 and GA 2 of 2023 shall now be listed under the
appropriate heading.
97. There will be no order as to costs.
98. Urgent certified server copies, if applied for, be issued to the parties
upon compliance of due formalities.
( Sabyasachi Bhattacharyya, J. )
