1. GA COM 2 of 2024 is an application filed by HPL (the award holder) for
certain reliefs and directions. The award holder prayed for a direction
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encash/invoke the bank guarantee for a sum of Rs. 15,65,50,000/-
amount of Rs. 15.5 crores under the bank guarantee, in favour of the
award holder. The award holder also undertook to furnish adequate
security. In effect, a modification of the order dated June 23, 2022
passed in AP 338 of 2022 was prayed for. Further direction was sought
upon the award debtor to furnish additional security of Rs. 2.3 crores.
proceeded to hear out the application for setting aside the award.
2. AP - 338 of 2022, is the application for setting aside the Award dated
retired Hon'ble Judges. The petitioner (BPCL) was the claimant and the
respondent (HPL) was the respondent in the arbitral proceeding. The
May 25, 2017. The terms and conditions of sale and supply were clearly
specified in the agreement. Both the parties were signatories to the said
agreement. BPCL was the seller and HPL was the buyer.
3. Disputes and differences arose between the parties when HPL did not pay
and August, 2017. The balance price was calculated by BPCL on the
average quotes of August, 2017, treating August as the loading month.
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in August, 2017. HPL had made payment on August 18, 2017, on the
August, 2017. According to BPCL, the price of the liquid cargo was to be
calculated on Free on Board (FOB) basis. The delivery of goods was
complete as soon as the cargo was dispatched in the vessel i.e. in August,
2017. HPL made a payment of Rs. 1,07,40,802.96/-. BPCL claimed a
further sum of Rs. 10,69,81,787.05/-. The agreement was to remain in
4. Clause 18 of the agreement provided that any dispute or difference of any
regard to rights and liabilities, omission and action of the parties arising
out of the agreement, were to be resolved through arbitration. The
C Act'). The place of the proceedings was agreed to be Kolkata.
5. The case as run by BPCL, in the statement of claim is as hereunder :-
1,435,191,955.00.
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i. Although, at HPL's request, BPCL prepared a single B/L dated
August 1, 2017 i.e. on the date when the loading was completed, but
HPL did not pay the final price. The single B/L was handed over to HPL
on August 14, 2017. The final invoice was based on the average quotes
for the month of August (treating August 2017 as the loading month).
HPL made payment on August 18, 2017, on the basis of the two B/Ls.
Objections were raised by BPCL by e-mail dated August 30, 2017, to
which HPL replied on September 4, 2017, inter alia, contending that
the issue was not with regard to a single or a split up B/L, but the
enhanced price claimed by BPCL was in deviation to the agreed terms.
BPCL contended that the provisional invoice dated August 1, 2017,
amounting to Rs.143,51,91,955/- was based on the provisional pricing
formula laid down in the agreement for sale and supply of 41.84 kg of
Naphtha. Platt's quotes dated July 28, July 31, August 1, 2 and 3 of
2017, were taken into consideration in arriving at the net average price
of Naphtha per metric-ton i.e. Rs. 29,067.19/-. The provisional invoice
was raised on the basis of such rates. HPL made payment of Rs.
133,29,18,214.93/- on August 18, 2017. As per the agreed terms, the
final price was payable to BPCL on the basis of average quotes for the
loading month. The final B/L issued by the master of the vessel was
dated August 1, 2017. The agreement provided that the provisional bill
would be adjusted either by debit or credit notes. The final bill was
calculated and one debit note dated August 31, 2017, for the
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differential amount of Rs. 66,94,251/- was sent to HPL. HPL made
further payment of Rs.1,07,40,802.96/-. Rs. 98,227,188.11/- was due
and payable as the principal due, according to BPCL.
j. BPCL had placed the product safely on board and thereby handed
over possession of the goods on August 1, 2017. The delivery was
complete on August 1, 2017. As the pricing was on FOB basis, the sale
got completed once the entire product was free on board. As per clause
8 of the agreement, title of the goods passed from BPCL to HPL at the
disconnection of the last permanent flange. In the present case, loading
started on July 29, 2017 and the flange was disconnected on August 1,
2017. Final pricing of average quote of August 2017, was taken into
consideration by BPCL for claiming the differential amount and
generation of the debit note. The debit note was issued in connection
with the final pricing for the goods delivered and sold. BPCL, by an
Advocate's letter dated November 27, 2017, informed HPL that an
amount of Rs, 98,227,188.11/- was due and payable upon the final bill
having been raised. The method of calculation as to how BPCL had
arrived at the figure of Rs. 98,227,188.11/-, was also provided in the
letter. HPL denied such liability to pay and emphasized that the
payment had already been made and nothing was due and payable.
According to HPL, whether payment was made as per the single B/L or
Split B/Ls was a non-issue. BPCL contended that, the provisional
invoice considering the date of the Bill of Lading (B/L) as August 1,
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2017 was not objected to by HPL. Upon becoming aware of the upward
trend in the price of Naphtha in the month of August, 2017 and its
impact on the final price of Naphtha loaded on August 1, 2017, HPL
changed its mind. According to BPCL, the entire loading of Naphtha
was a single transaction and the agreement did not provide for splitting
up of invoices. It was BPCL's case that as the entire transaction was
one and continuous, the loading month should be considered as one,
i.e. the month when the loading was completed. Accordingly, a claim
was made for a sum of Rs. 10,69,81,787.05/- in respect of the balance
price of Naphtha sold and supplied, along with interest.
6. The calculation of the claim was as follows :-
"A. Principal
Invoice No. Date Invoice Amount Amount Received
Provisional - 01.08.17 1,435,191,955.00 1,332,918,214.93
4550013114
Debit Memo No 31.08.17 6,694,251.00 10,740,802.96
9646950000
Total 1,441,886,206.00 1,343,659,017.89
Balance 98,227,188.11
Principal Amt
B. Interest
Principal Amount 98,227,188.11
Interest @SBI Base Rate (9% till 30 th Sept 2017) + 10%
1%
Days (16 - 30 Sept) 15
Total interest for Sept 2017 403673/-
Interest @ SBI Base Rate (8.95% from Oct 1st to 9.95%
Dec 2017) +1%
Days (1st Oct to 31st Dec 2017) 92.
Total Interest for 1st Oct 17 to Dec 17 2463484.05
Interest @ SBI Base Rate (8.65% from Oct 1st to 9.65%
Dec 2017) + 1%
Days (1st Jan 18 to 31st March 18) 90
Total interest from Jan 18 to Mar 18 2337268.84
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Interest @ SBI Base Rate (8.70% from 1st April to 9.70%
Aug 17) +1%
Days (1st April 18 to 14 Aug 18)
Total interest amount for April 18 to 14th 18 3550172.78
Total (Principal + Interest) 10,69,81,787.05
7. The statement of claim was filed before the learned Arbitral Tribunal with
the above claim and the following prayers were made:-
a) An Award that the Claimant is entitled to receive an amount
of Rs 10,69,81,787.05 from the Respondent as the balance
consideration money as pleaded in paragraph 17.
b) Interest on award @ 18% per annum until realization.
c) Costs.
d) Such other or further other order or orders."
8. HPL filed a counter-statement and also made a counter-claim as
hereunder :-
"Particulars Amounts (INR)
Claim on account of risk purchase : 11,38,35,602
Demurrage claim : 46,50,000
Dead freight claim : 6,40,000
Excess payment refund claim : 2,27,72,651
Principal amount claimed : 14,18,98,253
Interest at the rate of 12% per annum on
the Principal amount : 98,38,208
Total Claim :15,17,36,461"
9. BPCL filed its rejoinder to the counter statement of facts and the counter-
claim filed by HPL. BPCL did not adduce any oral evidence. It was agreed
in the fourth sitting dated November 1, 2018, that no oral evidence would
be adduced by either of the parties. However, HPL decided to adduce oral
evidence and produced two witnesses. Arguments commenced from
December 14, 2019. Forty sittings were held and the tribunal made and
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published its final award on December 30, 2021. The award was as
follows :-
"The Award :
9. In the result -
a) The claim and the counter claim put forth by the claimant BPCL and the
respondent HPL respectively, can not be allowed, accordingly, both the
claim of BPCL and counter claim of HPL, arising out of the pricing
dispute is dismissed.
b) The respondent's counter claim for dead freight is allowed to the extent
ie: USD 9985.94 @ the conversion rate as on 05 01 2018.
c) HPL shall also be entitled to interest on the said amount in (b) above after
7 days from 05 01 2018 as specified in paragraph 6.16 and 6.17
hereinbefore till the date of the Award.
d) The respondent's counter claim for demurrage is allowed to the extent as
specified in paragraph 7.22 hereinbefore (INR 21,61,476.55 and INR
5,79,338.00);
e) HPL shall be entitled to interest on the above amounts at (d) ie: (i) on INR
21,61,476.55 for MT Jag Prerana after 15 days from the date of the
respective original debit note raised after 10.05.2018 (paragraph 7.7
hereinbefore) and (ii) on INR 5,79,338.00 for MT Sanmar Sonnet after 15
days from the date of the respective original debit note raised after
25.04.2019 (paragraph 7.9 hereinbefore), over the respective transactions
at the same rate of interest as provided in C1.5, till the date of award.
f) The respondent's counter claim for risk purchase is allowed to the extent
as specified in paragraph 8.29 and 8,30 hereinbefore at INR
11,38,35,602.00;
g) The respondent shall be entitled to interest on the above amounts at (f),
as provided in C1.5, for the period from 15 days after the date of debit
note raised by HPL after 26.04.2018 (the payment date to Saudi Aramco).
h) In the facts and circumstances of the case, no cost is awarded against
any of the parties;
i) The Award shall carry interest @7% per annum simple till realization."
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10. Mr. Tilak Bose, learned Senior Advocate appearing for BPCL submitted
that the dispute had arisen on account of non-payment of the differential
price of goods supplied by BPCL. HPL did not ever raise any claim by way
of refund or under any other head. As a counter-blast to the claim made
by BPCL, the counter-claim had been filed. Mr. Bose contended that even
though the scope of interference by a court under section 34 of the A & C
Act, 1996 was limited, but the law had permitted the Courts to interfere
when an award was either unreasoned or based on extraneous
consideration, or when the terms and conditions of the contract were
ignored or misinterpreted. According to Mr. Bose, the final price was
payable on average quotes for the loading month. The price of cargo was
to be calculated on FOB basis i.e. free on board. The delivery of the goods
was completed as soon as the dispatch of the vessel was complete on
August 1, 2017. The title passed when the flange was disconnected. B/L
was issued by the Master of the vessel on August 1, 2017. Even if loading
commenced on July 29, 2017, the date of completion of loading would be
considered to be the loading month. The B/L for August 1, 2017 was
issued at the request of HPL. HPL also understood the loading month to
be August, 2017, even though the loading began on July 29, 2017. It was
HPL's own understanding that loading was a continuous process and a
single B/L for the month of August, 2017 should be initiated. The manner
of payment made by HPL was wrongly sustained by the learned Arbitral
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Tribunal. HPL made payments of the provisional invoice on the quantities
mentioned in the split B/L dated July 29, 2017 and August 1, 2017. In
the split B/L dated July 31, 2017, average price for July 2017 had been
taken and in the B/L of August 1, 2017, average price of August 2017
had been taken. At the request of HPL, a single B/L dated August 1, 2017
was prepared. E-mails were exchanged between the parties. The Arbitral
Tribunal did not appreciate that, as one final B/L was raised at the
request of HPL, as a natural corollary to such request, only a single
invoice should be prepared on the basis of the average quotes of August
2017. Such was the term in the agreement, which was ignored by the
tribunal. The learned Arbitral Tribunal did not appreciate that the
provisional invoice was replaced by the final invoice dated August 1,
2017. The tribunal failed to determine the actual meaning of the
expression 'loading month'. The calculation of the final invoice was to be
made on the basis of the price for the loading month in terms of the
contract. The award was based on misinterpretation of the clauses of the
contract. The tribunal gave its own interpretation to the terms and
conditions of the agreement entered into between the parties. The
tribunal had re-written the agreement. The award was liable to be set
aside on the ground of perversity and patent illegality.
11. Mr. Bose relied on clause 5 of the agreement in order to support his
contention that the price of Naphtha was agreed to be calculated on the
basis of the quotes for the loading month and the provisional pricing
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would not be final and binding. The contract had made a special provision
for raising a final bill and a supplementary invoice. The final billing rate
would be in terms of the average quotes of the loading month. In this
case, the loading month would be August, 2017, as the loading was
completed on that date. Disconnection of the hose took place on August
1, 2017. Parties also understood August 2017 as the loading month,
which the tribunal failed to appreciate. Clause 5 of the agreement was
relied upon. The relevant portion reads as follows:-
"5. PRICE:
Naphtha supplies will be made on the pricing based on formulae
(FOB+ Market Premium + $5), wherein FOB and Premium shall be
worked as below:-
FOB: Average of Naphtha MOPAG (Average of Platts quotes) for all-
the-quotes during the loading month (M) will be considered as FOB
for any parcel loaded in a month (M)."
12. Clause 7c was relied upon to explain the commencement and conclusion
of laytime. It was urged that clause 7c provided that laytime would cease
upon disconnection of the hose. Clause 7c reads as follows :-
"7c. Lay time shall commence 6 hours after NOR (Notice of Readiness)
and shall cease upon hose disconnection."
13. Clause 8 of the agreement was relied upon to urge that disconnection of
the last permanent flange indicated that the entirety of the cargo had
been loaded in the vessel tank. As the supply was on FOB basis, it meant
that the supply was completed and the obligation of BPCL was fulfilled
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upon the entire cargo being loaded on the vessel on August 1, 2017.
Clause 8 reads as follows :-
"8. Delivery & Risk of Property :
Title and risk of loss of the cargo (including but not limited to
contamination, evaporation, etc.) shall pass from the BPCL (seller) to
HPL (buyer) at the disconnection of the last permanent flange at loading
terminal."
14. Mr. Bose urged that the definition of FOB in the Agreement, was 'parcel
loaded in a month'. It was treated as a unit. The expression 'parcel loaded
in a month' should be read in conjunction with the recital of the
agreement. The same reads as follows:-
"Whereas HPL had requested BPCL to supply one parcel of 20 TMT
quantity of Naphtha every month".
15. The same meaning was attached to the parcel size of 20,000 MT as would
appear in clause 7b of the agreement. Even if the loading of cargo
commenced in a particular month and spilled over to the next month, by
virtue of clause 8 of the agreement, the title did not pass from BPCL to
HPL until disconnection of the last permanent flange. The title passed on
August 1, 2017 and the parcel loaded in a month should be the month of
disconnection of the hose. Clause 7 b reads as follows :-
"7b Total Allowed lay time at load port shall be Thirty Six (36) hours for a
parcel size of 20,000 MT. Total allowed lay time shall be increased or
decreased on prorate basis (SHINC) with actual loading quantity."
16. It was urged that the interpretation given by the tribunal, to the
expression 'parcel', as a unit of the cargo supplied, to be taken separately
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for the month of July and August, was absurd and would defeat a
common sense approach to commercial transactions arising out of FOB
contracts. A common man, with a reasonable amount of prudence, would
find the reasons assigned by the tribunal and the interpretation of the
tribunal, to be shocking. The GST return was calculated by BPCL on the
basis of the final pricing and was paid. Once BPCL had altered its
position by making such payment on the basis of the final pricing, which
was within the knowledge of HPL, HPL was estopped from disputing the
final invoice. Reliance was placed on the various communications
between the parties in support of the contention that HPL had agreed to
make payments as per the final B/L dated August 1, 2017, on the basis
of the invoices and the supplementary bill raised. Several
documents/letters dated 4.8.2017, 5.8.2017, 10.8.2017, 11.8.2017,
12.8.2017, 14.8.2017, 22.8.2017, 30.8.2017, 4.9.2017 and 5.9.2017 were
ignored by the tribunal. The request for a single B/L was to enable HPL to
synchronize the B/L with the invoice. HPL had requested for a revised
B/L and stated that non-receipt of documents would delay BPCL's
payment. The single B/L dated August 1, 2017, was for the entire
quantity supplied and prepared at the repeated request of HPL. HPL had
asked its agents to facilitate release of a single B/L, to be prepared afresh,
for the entire quantity dated August 1, 2017 and to replace the split B/Ls
issued earlier. The shipping agent of HPL collected B/L from BPCL's office
as per instruction of HPL. BPCL wrote to HPL, inter alia, stating that the
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final pricing has been fixed on the quotes for the month of August 2017.
BPCL wrote to HPL, stating that the transaction involved GST
implications. In spite of providing all the requested relevants documents
within August 14, 2017, HPL had made payments on the basis of two
split bills without considering that the payment of the GST component
was made as per the final bill and the debit note should be honoured.
Reference was made to the decision of Delhi Metro Rail Corporation
Limited vs Delhi Airport Metro Express Private Limited reported in
(2024) 6 SCC 357, in support of the contention that the award should be
set aside on the ground of non-consideration of vital evidence and specific
terms of the agreement.
17. Mr. Bose contended that the claim for differential pricing and the prayer
for payment of the deficit amount which was raised in the final invoice,
should have been directed by the learned tribunal. The documents relied
upon would show that the parties had agreed that in spite of provisional
pricing on the basis of five average quotes for the loading month, a final
pricing would be made and a final invoice would be raised. The parties
were conscious that there would be a differential amount i.e. payment
either in excess of or lesser than the provisional pricing which was to be
adjusted by debit or credit notes. Such agreement was on the
understanding of the fact that quotes could vary from month to month
and the pricing was to be made on the average quotes of the loading
month, i.e., the month when the hose was disconnected. The learned
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tribunal had rewritten the terms of the agreement by interpreting 'parcel'
as a single and separate unit for July and August.
18. Mr. Bose then proceeded to address on the illegality and perversity in
allowing the counter claims for demurrage, dead freight and risk
purchase. With regard to the counter-claim for demurrage, Mr. Bose
contended that the vessel used for transfer of the cargo from the load port
at Kochi to the discharge port at Haldia, was to be provided by HPL. A
charter party agreement was to be executed with the vessel owner.
Reference was made to clause 6 of the agreement. It was submitted that
as per clause 7, delay in loading would be to the account of BPCL. All
subsequent demurrage charges were to be borne by HPL. Clauses 7a and
7c of the agreement were placed.-
"7a Demurrage (if any) at load port will be on BPCL account.
7c Lay time shall commence 6 hours after NOR (Notice of Readiness) and
shall cease upon hose disconnection."
19. Clause 7g provided that HPL would provide the vessel owner's demurrage
claim and debit note, to prove the final demurrage applicable for the load
port. The same was to be provided within 90 days from completion of
discharge of cargo. Clause 7g reads as follows :-
"7g Buyer shall provide vessel owner's demurrage claim, relevant portion
of charter party mentioning demurrage PDPR (Per Day Prorate), and debit
note from HPL regarding the final demurrage applicable for load port
within 90 days of completion of discharge of the cargo. Seller will respond
to the claim by acceptance or counter within 15 days of claim failing
which the Buyer's claim shall be deemed to have been accepted by Seller
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and buyer shall raise debit note accordingly. Seller shall settle the claim
within 15 days from date of debit note."
20. HPL had raised a demurrage claim in respect of three vessels, namely,
M.T. Jag Prerana (B/L dated 03.06.2017), M.T. Sanmar Sonnet (B/L dated
31.7.2017 and August 1, 2017) and M.T. Sanmar Sonnet (B/L dated
30.9.2017). In respect of M.T. Sanmar Sonnet (B/L dated 31.7.2017 and
1.8.2017), claim for demurrage was disallowed. For M.T. Jag Prerana and
M.T. Sanmar Sonnet the counter-claims for demurrage were allowed. Mr.
Bose submitted that the basis of the calculation was incorrect as the split
B/Ls were replaced by the final B/L dated August 1, 2017. The tribunal
wrongly held that losses were suffered at the load port, although there
was no evidence before the learned tribunal. The two invoices raised by
the shipping company did not specify that the demurrage was on account
of the losses suffered at the load port. The finding of the learned tribunal
that the demurrage was suffered "admittedly" at the load port was
perverse and based on no evidence. The agreement provided that
demurrage would be paid by BPCL only if there was delay in loading.
Subsequent demurrage charges would be payable by the buyer. Mr. Bose
submitted that the required documents as per clause 7(g) were not
submitted. Moreover, the claim for demurrage was made much beyond
the period of 90 days. Reliance was placed on the decision of Ssanyong
Engineering and Construction Company Limited vs. National
Highways Authority of India (NHAI) reported in (2019) 15 SCC 131, on
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the proposition that findings based on no evidence would render the
award unsustainable on the ground of patent illegality.
21. With regard to the claim for dead freight, Mr. Bose relied on clause 3 of
the agreement and further submitted that dead freight could be allowed if
the loss was suffered when the quantity loaded was below the quantity/
volume, nominated by the buyer. The calculation of dead freight would be
the difference between actual per Metric Ton freight incurred and the
freight cost in case the buyer's nominated quantity had been loaded.
Clause 3 reads as follows :-
"3. DEAD FREIGHT CLAUSE :
Dead freight loss due to quantity loaded blow the cargo volume
nominated by the Buyer shall be on Seller's account. It shall be
calculated based on the difference between the actual per MT freight
incurred and the freight cost in case the buyer's nominated quantity had
been loaded. [(Total freight/loaded Qty) (Total freight/Buyer's nominated
Qty)] * Loaded Qty.
In case of dead freight loss, if any, HPL shall send a debit note to BPCL,
payment of which to be done by BPCL through electronic Transfer within
7 days from the date of issuing of Debit Note. Conversion rate would be
as per RBI reference for the pricing period of cargo."
22. There was no evidence which would indicate that loss was sustained by
the buyer on account of less cargo being loaded for the relevant month i.e.
December 2017. The award itself recorded that the vessel owner had
raised a an invoice for a lumpsum freight charge of $ 67.60 as per the e-
mail dated December 13, 2017. BPCL had loaded 19971.88 MT. On the
basis of such difference, dead freight for 453.12 MT had been calculated.
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Such calculation was not permissible because it was a lumpsum freight,
and the actual per MT freight could never be worked out. In the case in
hand, the actual per MT freight would be the same as freight cost and
therefore there would to be no difference. Unless loss was proved, dead
freight was not payable. Section 73 and 74 of the Indian Contract Act
was relied upon to show that payment for damages could be awarded only
if loss had been sustained. Reliance was placed on the decision of the
Hon'ble Apex Court in Kailash Nath Associate vs. Deuli Development
Authority reported in (2015) 4 SCC 130.
23. The next submission of Mr. Bose was on the illegality in allowing the
counter-claim under the head, risk purchase. According to Mr. Bose, the
tribunal had misconstrued the contractual provisions. No man, with
reasonable prudence, would have allowed such counter-claim. The claim
was de hors the provisions of the contract. Allowing such claim was in
effect, re-writing the contractual provisions. The tribunal acted in excess
of jurisdiction and went beyond the scope of the dispute. Judicial
interference under section 34 of the A & C Act was permissible in this
case. The tribunal failed to consider the meaning of 'Laycan' which was
March 4/5 of 2018. The first date was the earliest when the ship was to
be made available. The second date was the date of cancellation, i.e. the
date on which the person entrusted with the loading could cancel the
agreed 'laycan'. Reliance was placed on the definition of Laycan, Laytime
and Notice of Readiness, by referring to the Dictionary of Shipping Terms
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(4th Edition) by Peter Brodie, LLP Publication. It was submitted that, if the
ship did not arrive, the seller could cancel the laycan. Here, before the
ship was brought by the buyer, the cargo offered was cancelled. Clause 19
of the agreement provided that only when the seller failed to comply with
the terms and conditions mentioned under clause 6, relating to cargo
laycan nomination, the buyer, in addition to taking other legal steps,
would be entitled to make risk purchase at the seller's cost. There was no
failure on the part of the seller to comply with the terms and conditions
mentioned in clause 6. Clause 6 had no manner of application in the facts
of the case. The incidence of breach contemplated under the agreement
did not arise. No vessel had been nominated and no Charter Party
Agreement had been executed by HPL at the relevant point. Although, the
goods were offered by the seller for the laycan period, HPL decided to
reject such goods and refused to enter into a Charter Party Agreement. No
vessel was brought to the load port to enable the seller to load the cargo.
Several correspondences were relied upon in support of such contentions.
24. Clause 6 reads as follows:-
"6. CARGO/LAYCAN NOMINATION:
The vessel engaged for the transfer of the cargo from load port (Kochi) to
the discharge port (Haldia) shall be appointed by HPL only, who shall
appoint the said vessel by executing the charter agreement with the
vessel owner. All the charges, fee, expense, loss, damage, claim of any
manner whatsoever with regard to the said vessel shall be borne by HPL."
25. The tribunal totally ignored such facts. Clause 6 of the agreement
contemplated a situation where the buyer was agreeable to purchase
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goods to be supplied by the seller and the vessel was arranged. In the
instant case, although, the goods were offered by BPCL for the period 3rd
to 5th March, 2018, HPL, in its wisdom, decided to reject such goods and
refused to enter into a Charter Party Agreement for arrangement of the
vessel. No vessel had been brought to the load port to enable the seller to
load the cargo. Mr. Bose relied on the e-mails dated 3.2.2018, 5.2.2018 (4
in number), 6.2. 2018 (2 in number), 12.2.2018, 16.2.2018, 20.2.2018 (3
in number), 21.2.2018, 23.2.2018 (3 in number), 24.2.2018, 26.2.2018 (3
in number), 8.3.2018, 15.3.2018, 20.03.2018 and 04.4.2018. Mr. Bose
submitted that the alleged purchase of the cargo under the risk purchase
clause, was made by HPL in the month of April 2018 i.e. much later than
the laycan period. Damages on account of risk purchase could not be
permitted if there was no spot purchase during the same laycan period.
Moreover, no notice had ever been issued by HPL to the petitioner,
regarding invocation of the risk purchase clause on account of the failure
of the petitioner to keep its commitment of loading the goods during the
laycan period. HPL's document with regard to the risk purchase was
fabricated. There was no evidence of risk purchase during the relevant
laycan period. The contract contemplated supply of Naphtha by BPCL up
to 20 TMT +- 10%. BPCL fulfilled the supply within the stipulated period,
i.e., 219 TMT Naphtha by December 2017. Thereafter, by reason of
overhauling of its tanks, supply was disrupted. This aspect had not been
looked into by the learned tribunal. BPCL could not supply cargo in
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January, February, March and April 2018. On account of such non-
supply of cargo between January and April, there was no complaint from
HPL. Clause 2 of the agreement provided that HPL undertook to purchase
a minimum quantity of 20 TMT of Naphtha +/- 10% at buyer's option,
every month, during the validity period of the agreement. This could not
be treated as a firm commitment on the part of BPCL to supply as per
such clause. The failure could not be regarded as a breach. HPL, by its
conduct had waived any objection to the non-supply of the cargo between
January to April 2018, when the overhauling work was going on. Mr.
Bose further submitted that the goods were offered to HPL, but HPL
refused on the ground that the specifications of the goods i.e.,
composition of the various elements of Naphtha, as provided in the
agreement, had not been met. According to Mr. Bose, one or two
deviations may have occurred, but majority of the parameters had been
satisfied. Even the cargo which was offered by the petitioner and rejected
by the buyer on February 26, 2018, had met with the contractual
specifications. The rejection of the goods by HPL, was contrary to the
terms and conditions of the contract. The petitioner offered goods which
fulfilled the guaranteed specifications as per annexure 1 of the contract.
Such fact was completely ignored by the tribunal and the tribunal relied
on random isolated parameters, which were not the guaranteed
specifications. The rejection of the goods by the buyer, was a breach of
the agreement by the buyer, but the learned tribunal ignored such
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breach. Award of damages on account of risk purchase of Naptha from
Saudi Aaramco, sometime in 2018, was not covered by the agreement.
The quality of the goods purchased from Saudi Aaramco also was not as
per the agreed specification. The tribunal did not consider whether the
goods purchased from Saudi Aaramco met the guaranteed specifications.
Damages on account of risk purchase could be allowed only if similar
goods were purchased by HPL during the relevant laycan nomination, on
account of the seller not being able to load the goods during the laycan
nomination. In the present case, the scenario was completely different. It
did not call for award of damages. Such award of damages suffered from
perversity. A further vital issue was ignored by the tribunal, inasmuch as,
the time to supply the goods under the agreement was extended and by
July, 2018, BPCL had supplied an aggregate quantity of 50.613 TMT of
Naphtha. The e-mails exchanged between the parties formed vital
evidence in this regard, which the learned tribunal had chosen to ignore.
26. Mr. Sabyasachi Chowdhury, learned Senior Advocate appearing for HPL
submitted that the views taken by the learned tribunal were possible
views and not open to challenge before this court. The tribunal had
interpreted the terms and conditions of the contract, the clauses thereof
and held that some of the counter-claims of HPL were justified. The
tribunal supplied the reasons. The first claim of HPL for refund on
account of differential pricing was rejected on the ground that HPL had
paid the money as raised by the provisional invoice. Calculation of the
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price for the month of July, 2017 and August, 2017 were made separately
in the invoice. The parties understood that the pricing would be
considered as per the respective loading months. Thus, it was the finding
of the tribunal that the 'parcel of goods' in this case would be the unit
loaded in each month i.e. July and August. Mr. Chowdhury submitted
that the learned tribunal, thus, rejected the claim of HPL. The contract
provided that the payment would be made as per the quotes for the
month of July, 2017. The tribunal proceeded on the conduct of the
parties. The laycan period as per clause 6 was narrowed down to July 27,
2017 and July 28, 2017. Mr. Chowdhury submitted that HPL chose not to
challenge such finding as the tribunal's interpretation of the clauses were
based on how the parties understood and treated the terms and
conditions with regard to pricing. The tribunal was the master of facts
and of the quality of evidence. The conclusion of the learned tribunal on
this score should not be interfered with, even if an alternative view on the
interpretation of clause 5 of the said agreement was possible. The formula
arrived at by the tribunal was on the interpretation of the expression
'loading month' which was taken subsequently as July, 2017 and August,
2017, and as such, the quantum of goods loaded in July and August were
treated to be separate parcels. It was contended that passing of the title of
the goods would not affect the price of the same or vice versa. The
intention of the parties to the contract was the key to determine what
actually transpired between them. The interpretation given by BPCL that
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the title would pass only on August 1, 2017, upon disconnection of the
last permanent flange at the loading terminal and the final price should
be based on the average quotes of August 2017, would permit BPCL to
take advantage of its own delay in loading the vessel. Admittedly, the
vessel could not berth on July 28, 2017, due to congestion in the load
port and the vessel berthed on July 29, 2017 at 9 hours, when the
loading commenced. The price at which the goods were to be sold was to
be determined solely on the basis of the contract between the buyer and
the seller of such goods. The passing of the title of the goods would not
affect the price of the same. Clause 5 clearly provided the manner in
which the price of the goods would be ascertained. Thus, the date on
which the title had passed from BPCL to HPL was not relevant in the
instant case.
27. It was submitted that HPL had claimed demurrage on three counts. First
in respect of M.T. Jag Prerana (B/L dated 3.6.2017), second in respect of
M.T. Sanmar Sonnet (B/L dated 31.7.2017 and 1.8.2017) and the third in
respect of M.T. Sanmar Sonnet (B/L dated 30.9.2017). HPL had urged that
the demurrage claimed was on pre-estimate of the loss expected to be
suffered by HPL on account of failure by the seller and the claim of HPL
was not restricted to the actual loss suffered by them. The learned
tribunal did not accept such contention, but followed the principle that
one could be indemnified to the extent one had been damnified. The
tribunal only allowed the counter-claim of HPL on account of the
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demurrage to the extent of the amount which was paid to the vessel
owner by HPL. BPCL had admitted that demurrage was payable to HPL.
Such admission was available from the e-mail dated September, 16,
2018. HPL had provided calculations for the demurrage hours. The
submission of BPCL that the delay was on account of the force majeure
event, was held to be contrary to the force majeure clause under clause
17 of the agreement. Similarly, while awarding the counter-claim of HPL
on account of dead freight, the learned tribunal followed the same
principle. By the e-mail dated January 22, 2018, BPCL had admitted the
claim of HPL on account of the dead freight. Once BPCL sought waiver of
dead freight, the liability to pay the same was admitted. The formula in
clause 3 of the agreement had been duly applied in consonance with the
calculations of proportionate dead freight. With regard to the claim on
account of the risk purchase, Mr. Chowdhury submitted that from the
contemporaneous correspondence, it would be evident that clause 19 of
the agreement had been breached by BPCL. The e-mail dated February 3,
2018, would clearly indicate that Naphtha was not available as BPCL had
already exported the same. Therefore, HPL requested for a confirmation of
availability of Naphtha for the month of March 2018. By an e-mail dated
February 5, 2017, HPL recorded BPCL's confirmation of availability of 20
KT of cargo. By a subsequent email of February 5, 2018, BPCL confirmed
that they would provide 30 KT Naphtha during March 4 and 5 2018.
BPCL requested for acceptance of the cargo by HPL. By an e-mail dated
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February 6, 2018, HPL confirmed lifting of 30 KMT Naphtha during 4th
and 5th March, 2018. By an e-mail dated February 12, 2018, HPL
requested BPCL for availability of cargo for the month of April, 2018.
BPCL responded to the e-mail on February 15, 2018, to the effect that
BPCL would be in a position to offer 35 KT Naphtha in the month of April,
2018. By the said e-mails, BPCL confirmed that since the parties would
be completing the MoU, the cargo for April 2018 would be dispatched
under the new MoU terms only. In respect of the cargo scheduled for 4th
and 5th March, 2018, BPCL shared quality parameters by their e-mail
dated February 16, 2018. By an e-mail dated February 16, 2018, HPL
informed BPCL that the specifications shared by BPCL, differed from
contractual specifications. However, as a special case and without
creating a precedence, HPL was agreeable to accept the cargo by deviating
from the contractual specifications. By an e-mail dated February 20,
2018, the quality parameters of certified batches were shared by BPCL
with HPL. It would be evident from a subsequent e-mail of HPL dated
February 20, 2018, that the parameters of the cargo shared by BPCL on
February 20, 2018 was of further inferior quality. By the said e-mail, it
was clearly communicated by HPL to BPCL that, further deterioration of
the quality would cause immense inconvenience to HPL and HPL would
have to take up the matter with their plant. From the e-mail dated
February 21, 2018, sent by BPCL, it would be evident that there was an
admission with regard to the inferior quality of Naphtha. Similarly, the e-
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mail sent by BPCL on February 23, 2018, requesting HPL to accept such
inferior quality of cargo, itself, would prove that the quality of cargo
proposed to be supplied by BPCL or as was available with BPCL, was of
low quality. That itself was a breach. HPL had expressed displeasure
when BPCL had deviated from the accepted specifications. By an e-mail
dated February 26, 2018, BPCL shared the test result of the product
planned for loading on 4th and 5th March, 2018. HPL rejected the cargo
saying that the same did not even meet the parameters which were
accepted by it, upon deviating from the original parameters. By an e-mail
dated March 8, 2018, HPL requested BPCL to advise on the next laycan
for supply of cargo as per the contractual specifications. BPCL however
did not respond to the said e-mail. By letters dated March 17th and 18th
2018, HPL informed BPCL that it had no other way of procuring Naphtha
and was compelled to opt for risk purchase, to ensure fleet security. BPCL
had failed to supply the agreed quantity of Naphtha upon meeting the
contractual specifications. Several opportunities were given to BPCL to
meet the quality of Naphtha and share the test results of the same to
enable HPL to ascertain whether the quality of Naphtha that was
proposed to be loaded, at least met some of the specifications. The
respondent had rejected the cargo as the test results were much below
the standard quality and the deviation was not accepted. Continuous
supply of Naphtha was mandatory and there was no other option, but to
go for risk purchase. The contention of Mr. Bose that only when the vessel
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was sent by HPL, clause 6 could be invoked, was not acceptable. The
parties were negotiating on the quality of Naphtha to be supplied. The
supply in July 2018 was independent and was not an extension of the
agreement. BPCL offered to supply 35 KT of Naphtha with the laycan of
19-20th July. By email dated June 21, 2018, upon ascertaining the
quality parameters, HPL confirmed the deal on independent terms and
conditions, which inter alia, included pricing period and loading month
average. BPCL admitted that the subject agreement was valid only upto
April 30, 2018.
28. The question of the respondent entering into a Charter Party Agreement
and sending a vessel for loading did not arise. The respondent was
already aware that the quality of goods proposed to be loaded was not up
to the mark. There was no reason why the respondent would be under an
obligation to accept low quality goods when the parameters had been
specifically stated in the annexure to the contract. There was a default on
the part of BPCL to supply the required quantity of Naphtha with the
required specifications, and as such, the risk was justified. The date of
the risk purchase was not relevant. A comparative analysis of the
parameters of the goods purchased from Saudi Aaramco with what was
proposed to be supplied by BPCL, would show that the quality offered by
Saudi Aaramco was comparatively closer to the agreed specifications.
According to Mr. Chowdhury, the scope of interference of a Court under
section 34 of the A & C Act is extremely limited and he submitted that the
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application should be dismissed. Reliance was placed on the decision of
OPG Power Generation Private Limited vs. Enexio Power Cooling
Solutions India Private Limited and Another reported in 2024 SCC
OnLine SC 2600.
29. Considered the submissions of the respective parties. Recourse against an
arbitral award is provided under chapter VII of the A & C Act, Section 34
deals with an application for setting aside an award. The same is quoted
below:-
"34. Application for setting aside arbitral award.--(1) Recourse to a Court
against an arbitral award may be made only by an application for setting
aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if--
(a) the party making the application [establishes on the basis of the
record of the arbitral tribunal that]--
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the
parties have subjected it or, failing any indication thereon, under the law
for the time being in force; or
(iii) the party making the application was not given proper notice of the
appointment of an arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not
falling within the terms of the submission to arbitration, or it contains
decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be
separated from those not so submitted, only that part of the arbitral
award which contains decisions on matters not submitted to arbitration
may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was
not in accordance with the agreement of the parties, unless such
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agreement was in conflict with a provision of this Part from which the
parties cannot derogate, or, failing such agreement, was not in
accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
[Explanation 1.--For the avoidance of any doubt, it is clarified that an
award is in conflict with the public policy of India, only if,-- (i) the
making of the award was induced or affected by fraud or corruption or
was in violation of section 75 or section 81; or (ii) it is in contravention
with the fundamental policy of Indian law; or (iii) it is in conflict with the
most basic notions of morality or justice.
Explanation 2.--For the avoidance of doubt, the test as to whether there
is a contravention with the fundamental policy of Indian law shall not
entail a review on the merits of the dispute.]
[(2A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by the
Court, if the Court finds that the award is vitiated by patent illegality
appearing on the face of the award: Provided that an award shall not be
set aside merely on the ground of an erroneous application of the law or
by re appreciation of evidence.]
(3) An application for setting aside may not be made after three months
have elapsed from the date on which the party making that application
had received the arbitral award or, if a request had been made under
section 33, from the date on which that request had been disposed of by
the arbitral tribunal: Provided that if the Court is satisfied that the
applicant was prevented by sufficient cause from making the application
within the said period of three months it may entertain the application
within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may,
where it is appropriate and it is so requested by a party, adjourn the
proceedings for a period of time determined by it in order to give the
arbitral tribunal an opportunity to resume the arbitral proceedings or to
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take such other action as in the opinion of arbitral tribunal will eliminate
the grounds for setting aside the arbitral award.
[(5) An application under this section shall be filed by a party only after
issuing a prior notice to the other party and such application shall be
accompanied by an affidavit by the applicant endorsing compliance with
the said requirement. (6) An application under this section shall be
disposed of expeditiously, and in any event, within a period of one year
from the date on which the notice referred to in sub-section (5) is served
upon the other party.]"
30. The award has been challenged on the grounds of non-consideration of
material evidence, non-supply of reasons, conclusions based on surmise
and conjecture, the tribunal rewriting the terms and condition of the
contract etc. According to BPCL, the tribunal had given its own
interpretation of the relevant clauses of the contract, while refusing the
prayer for payment of the differential price as per the final invoice. The
expression 'parcel' was misconstrued. The interpretation given by the
tribunal was incomprehensible and shocking to the conscience of a
reasonable man. The tribunal had made out a third case. Further
contention was that the counter claims of the respondent, apart from the
prayer for refund, were wrongly awarded, without taking into account the
relevant clauses of the contract. The clauses of the agreement had to be
strictly construed. The tribunal gave a liberal and equitable meaning to
the clauses relating to demurrage, dead freight and risk purchase.
31. The issues to be decided in this application are whether the arbitral
award is in conflict with the public policy of India or/and is vitiated by
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patent illegality apparent on the face of the award. Section 34(2)(v)(b)(ii)
provides that, when a court finds that the arbitral award is in conflict
with the public policy of India, it may set aside the award. Explanation -I
thereto provides that an award will be in conflict with the public policy of
India only if it is in contravention with the fundamental policy of Indian
law or it is in conflict with the most basic notions of morality or justice.
The first ground under Explanation - I is not relevant as it is nobody's
case that the making of the award was affected by fraud or corruption or
was in violation of Section 75 or 81. Explanation -2 clarifies that the test
as to whether there is a contravention with the fundamental policy of
Indian law shall not entail a review on the merits of the dispute.
Explanation 2A provides that an arbitral award arising out of the
arbitrations other than International Commercial Arbitrations may be set
aside by Court if the Court finds the award is vitiated by patent illegality
appearing on the face of the award. . Thus, the award in the instant case
has to be scrutinized within the limitation of the law which permits
setting aside of an award i.e. whether the award is either in contravention
of the fundamental policy of Indian law or is in conflict with the most
basic notions of morality or justice or is patently illegal.
32. In this case, the Arbitral Tribunal considered the background of the
dispute which led to the reference. The tribunal dealt with the claim and
thereafter the counter-claims, in a phased manner.
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33. First, the tribunal dealt with the claim and counter claim relating to the
differential pricing (pricing dispute) for sale and supply of Naphtha during
the loading i.e., July 29, 2017 and August 1, 2017. In order to appreciate
the claim based on the final invoice and counter-claim for refund of
excess payment in respect of the said loading period, the tribunal referred
to clauses 5, 6, 7 and 8 of the contract, which were also relied upon by
Mr. Bose in support of the claim for the differential pricing as per the final
invoice.
34. The learned tribunal applied the above clause to the balance claim of the
petitioner and the counter claim for refund, i.e., the pricing dispute
between the parties. It was observed that the supply was for the month of
July, 2017. The laycan was narrowed down to July 27, 2017 and July 28,
2017. Such laycan period was accepted by both the parties. The notice of
readiness was issued on 28th July, 2017 at 17:30 hrs. Accordingly, the lay
time commenced from 23:30 hrs. of July 28, 2017 as per clause 7(c). Due
to congestion at the port, berthing was delayed and the vessel berthed at
9:00 hrs. on July 29, 2017. The loading commenced at 11:18 hrs. on July
29, 2017. The contractual lay time of 72 hrs. ended at 23:30 hrs. of July
31, 2017. According to BPCL, the laycan actually ended by 02:45 hrs. on
August 1, 2017. The loading was completed at 11:36 hrs. of August 1,
2017. The hose was disconnected at 12:20 hrs. of August 1, 2017. The
tribunal recorded that delay in loading the cargo was an admitted
position. Berthing of the vessel was delayed due to congestion in the load
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Port and because high capacity pumps were not available to load the
cargo. Such observations of the learned tribunal were based on a
communication dated August 31, 2017 from an officer of BPCL to an
officer of HPL. Paragraph 2 of the said e-mail is significant. The said
paragraph is quoted below:-
" 2. The loading started at 1118 Hrs on 29th Jul'17 and completed at
1136 Hrs on 1st Aug' 17. This is within the standard loading time of 72
Hrs that requires to load 40KT in a vessel. However, the loading took this
much time due to non-availability of high capacity pump on account of
technical issues."
35. In the above background, the claim was considered. BPCL raised two bills
of lading (B/L), one for 33968.155 MT, being quantity loaded in the
month of July, 2017 and the other for 7875.049 MT which was the
quantity loaded on August 1, 2017. A provisional invoice for the total
cargo loaded was raised on the split B/L. HPL requested for one B/L and
BPCL replaced the two B/Ls. HPL disputed the provisional bills on the
ground that the average of prior 5 days quotes had not been properly
taken. However, HPL made its own calculation and made its payment.
Subsequently, BPCL raised a debit note for the final bill for 41483.204
MT, i.e., the total quantity loaded in July and August taken together, on
the basis of the average quotes during the month of August 2017. HPL
disputed the same on the ground that the pricing should be on the
average quotes during the month of July, 2017 i.e. the originally agreed
laycan period. However, HPL paid on the basis of its own calculation
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based on the July 2017 quotes, for 33968.155 MT and August 2017
quotes, for 7875.049 MT. The manner of payment/calculation by HPL was
available in annexure R1 to the annexures of the counter statement.
36. BPCL's claim for the difference in price paid by HPL and the price quoted
on the basis of average quotes during the month of August, 2017 together
with interest, were rejected by the learned tribunal. The submissions of
learned counsel for BPCL, the documents available before the tribunal
and the tribunal's understanding and construction of the provisions of
the agreement and how the parties understood the contract, were taken
into account. It was held that the meaning and import of the expression
"loading month" in clause 5 of the agreement was unambiguous. FOB
was explained in Clause 5. The average of Naphtha for all the quotes
during the loading month was to be considered as FOB for any parcel
loaded in a month. According to the learned tribunal "any parcel loaded in
a month" was to be given its plain, simple and ordinary meaning. The
phrase should not be rendered either redundant or otiose. It should be
construed harmoniously with the other provisions. The tribunal held that
there was no special context to hold the loading month to be August,
2017. Rather, the loading month should be partly July 2017 and partly
August 2017, as per the quantum loaded in each of those months. The
expression "any" before the word "parcel" and the article "a" before the
word "month" was significant and indicative. The expressions "any" and
"parcel", would mean that each cluster of cargo or unit of cargo loaded in
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the particular month would be treated as a separate parcel or unit and a
part of the whole of the cargo loaded in the months of July and August.
The expression should be read as "any parcel in a month" meaning
thereby the parcel of Naphtha loaded in July would be treated as one unit
and the parcel of Naphtha loaded in August would be treated as a
separate unit and the prices should be calculated on the prior five quotes
of July, for the parcel of goods of cargo loaded in the month of July and
similarly on the prior five quotes of August, for the quantity of cargo
loaded in August 2017. The definition of the expression "parcel" was
adopted from the shorter Oxford English Dictionary, which meant a part
of anything, considered separately as a unit, a similar portion or particle,
a component, part of something, something included in a whole. In this
context clause 5 is quoted below:-
"5. PRICE:
Naphtha supplies will be made on the pricing based on formulae (FOB+
Market Premium + $5), wherein FOB and Premium shall be worked as
below:
FOB: Average of Naphtha MOPAG (Average of Platts quotes) for all-
the-quotes during the loading month (M) will be considered as
FOB for any parcel loaded in a month (M)"
37. According to the tribunal, the expression "parcel" had been used in the
contract to signify a quantity. Clause 7(b) was referred to. The same is
quoted below:-
"7(b) Total Allowed lay time at load port shall be Thirty Six (36)
hours for a parcel size of 20,000 MT. Total allowed lay time shall be
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increased or decreased on prorate basis (SHINC) with actual
loading quantity."
38. It was held that the parcel could be any quantity qualified by size or
qualified by the time of loading i.e. any parcel loaded in a month.
According to the learned tribunal, the communication between the parties
clearly indicated that HPL was agreeable to the price based on the average
quotes for the month of July, in respect of the parcel loaded in the month
of July and on the average quotes for the month of August, 2017 for the
parcel loaded in the month of August, 2017. In fact, HPL made payment
against the provisional invoice. BPCL insisted on average quotes for the
month of August, 2017. The contention of HPL was that the loading
month should be construed on the basis of the laycan month i.e. July.
The tribunal rejected the claims of both parties for the simple reason that,
the meaning of "loading month" and "loading laycan" were different as
would appear from clause 6b. Clause 6b is quoted below:-
"6b By the 1st of M-1(where M = loading Month) buyer shall nominate the
5 days loading Laycan within the 15 day laycan as agreed above which
seller to confirm within 2 days of receipt of HPL's proposed laycan. In
case seller is unable to accept the 5 day loading laycan as proposed by
HPL, within 2 days of receipt of HPL's proposed laycan. Seller may
propose alternate laycan with a maximum deviation of +/- 2 days from
the Buyer's proposed laycan."
39. Laycan was the period within which the vessel had to report. The
reporting of the vessel depended on the terms of the charter party
contract between HPL and the vessel owner. BPCL was not a party to the
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same. What was agreed between BPCL and HPL were the days of the
laycan in the loading month. Those two days of the laycan were the period
within which the vessel had to report and notify its readiness. Therefore,
according to the tribunal, the loading month should be given the meaning
as it appeared from clause 5 i.e., for any parcel loaded in a month. There
was neither inconsistency nor ambiguity in the expression "loading
month" in clauses 5 and 6, as per the understanding of the learned
tribunal. The said expression had nothing to do with the laycan period.
Therefore, according to the learned tribunal, the average quotes of any
parcel loaded in a particular month would be the price of the cargo for
that month. Therefore, the quantity loaded within July 31, 2017 would be
a separate and distinct parcel from the quantity of cargo loaded on
August 1, 2017. The arguments of BPCL and HPL were turned down. The
tribunal was of the opinion that, disconnection of the last permanent
flange was relevant for passing of title and risk, which had nothing to do
with the pricing.
40. Section 9 of the Sale of Goods Act, 1930 was considered. It was held that
the price had been fixed in terms of clause 5 and had to be determined on
the basis of the said clause, namely, FOB for any parcel loaded in a
month. Section 9 of the Act of 1930 provided that the price in a contract
of sale could be fixed by the contract or may be left to be fixed in a
manner which would be agreed to or determined in the course of dealings
between the parties. In the present case, the price had been fixed in terms
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of clause 5 and it had been determined on the basis of the said clause.
HPL's contentions with reference to the clause to show that laycan had
been fixed earlier, and pertained to the month of July, were not
considered relevant for the purpose of deciding whether the counter-claim
of HPL under the head 'differential pricing' should be allowed or not.
According to the tribunal, price was to be determined on the
interpretation of clause 5, which was independent of other clauses. Clause
6 was a guideline for laycan, narrowed down to loading laycan, whereas,
clause 7 dealt with demurrage and clause 8 dealt with passing of title and
risk. Each of those clauses were held to be independent of each other
and according to the tribunal, the clauses did not suffer from any
ambiguity. The tribunal found that it was not necessary to look for any
other clause to interpret the meaning of the expression "loading month".
The meaning of the expression "loading month", was absolutely clear and
unambiguous under clause 5. The decisions cited by the parties were also
considered. It was found that there was no repugnancy in the expression
"loading month" used in clause 5, with the other clauses, when the
subject or context was pricing. The tribunal, while negating BPCL'S claim
held that, how both the parties understood the contract was reflected by
their conduct, inasmuch as, BPCL issued two separate B/Ls for two
parcels, followed by the provisional bill, thereby, pricing the two parcels
separately. HPL made the payment based on average quotes of July 2017
for the parcel loaded in July and average quotes of August 2017 for the
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parcel loaded in August. As a result, the claim of BPCL for further
amount as per the single B/L and the HPL's claim for refund of excess
payment made for the quotes of August, were both rejected. Findings of
the learned tribunal are based on the tribunal's understanding and
construction of the contract and the way the parties understood clause 5.
The Tribunal is the master of facts. The construction of the contract must
be left to the tribunal. The scope of interference of the Court under
section 34 of the A & C Act is limited. The Court cannot re-appreciate the
evidence. The view of the tribunal is a possible view. The tribunal's
interpretation of the clauses, as have been discussed hereinabove, do not
appear to be either patently illegal or bereft of reasons. According to the
tribunal, when the parties by their conduct had displayed that they had
treated each of the parcels of cargo loaded in July and August separately,
and calculation was made in the provisional invoice on the average quotes
of July and August separately, payments were also made as per the
calculation of HPL on the average quotes of July and August separately,
they could not turn around and claim something which was contrary to
what they had accepted by their conduct. Although, it has been urged
before this court that the GST payment was based on the calculation in
the final invoice, the petitioner had altered its position by making such
payment, and thus the respondent was estopped from challenging the
validity of the differential price claimed on the basis of the final invoice,
such case has not been made out in the statement of claim and there are
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no pleadings to that effect. Thus, this Court does not find any reason to
interfere with the decision of the learned tribunal on the first issue.
41. Reference is made to the decision of Bharat Aluminium Co. v. Kaiser
Aluminium Technical Services Inc., reported in (2016) 4 SCC 126 , the
Hon'ble Apex Court held as follows:-
"10. In the matter of interpretation, the court has to make different
approaches depending upon the instrument falling for interpretation.
Legislative drafting is made by experts and is subjected to scrutiny at
different stages before it takes final shape of an Act, Rule or Regulation.
There is another category of drafting by lawmen or document writers who
are professionally qualified and experienced in the field like drafting
deeds, treaties, settlements in court, etc. And then there is the third
category of documents made by laymen who have no knowledge of law or
expertise in the field. The legal quality or perfection of the document is
comparatively low in the third category, high in second and higher in
first. No doubt, in the process of interpretation in the first category, the
courts do make an attempt to gather the purpose of the legislation, its
context and text. In the second category also, the text as well as the
purpose is certainly important, and in the third category of documents
like wills, it is simply intention alone of the executor that is relevant. In
the case before us, being a contract executed between the two parties,
the court cannot adopt an approach for interpreting a statute. The terms
of the contract will have to be understood in the way the parties wanted
and intended them to be. In that context, particularly in agreements of
arbitration, where party autonomy is the grund norm, how the parties
worked out the agreement, is one of the indicators to decipher the
intention, apart from the plain or grammatical meaning of the
expressions and the use of the expressions at the proper places in the
agreement."
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42. In the matter of M/s Hindustan Construction Company Limited vs M/s
National Highways Authority of India, reported in 2023 INSC 768, the
Hon'ble Apex Court held as follows:-
"23. For a long time, it is the settled jurisprudence of the courts in the
country that awards which contain reasons, especially when they
interpret contractual terms, ought not to be interfered with, lightly. The
proposition was placed in State of UP v Allied Constructions17: "[..] It
was within his jurisdiction to interpret Clause 47 of the Agreement
having regard to the fact-situation obtaining therein. It is submitted that
an award made by an arbitrator may be wrong either on law or on fact
and error of law on the face of it could not nullify an award. The award is
a speaking one. The arbitrator has assigned sufficient and cogent
reasons in support thereof Interpretation of a contract, it is trite, is a
matter for arbitrator to determine (see M/s. Sudarsan Trading Co. v. The
Government of Kerala, AIR (1989) SC 890). Section 30 of the Arbitration
Act, 1940 providing for setting aside an award is restrictive in its
operation. Unless one or the other condition contained in Section 30 is
satisfied, an award cannot be set aside. The arbitrator is a Judge chosen
by the parties and his decision is final. The Court is precluded from
reappraising the evidence. Even in a case where the award contains
reasons, the. interference therewith would still be not available within the
jurisdiction of the Court unless, of course, the reasons are totally
perverse or the judgment is based on a wrong proposition of law"
24. This enunciation has been endorsed in several cases (Ref McDermott
International Inc. v. Burn Standard Co. Ltd18). In MSK Projects (I) (JV)
Ltd v State of Rajasthan19 it was held that an error in interpretation of a
contract by an arbitrator is "an error within his jurisdiction". The
position was spelt out even more clearly in Associate Builders (supra),
where the court said that: "[..] if an arbitrator construes a term of the
contract in a reasonable manner, it will not mean that the award can be
set aside on this ground. Construction of the terms of a contract is
primarily for an arbitrator to decide unless the arbitrator construes the
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contract in such a way that it could be said to be something that no fair
minded or reasonable person could do."
43. In the matter of McDermott International Inc. v. Burn Standard Co.
Ltd., reported in (2006) 11 SCC 181, the Hon'ble Apex Court held as follows:-
"112. It is trite that the terms of the contract can be express or implied.
The conduct of the parties would also be a relevant factor in the matter
of construction of a contract. The construction of the contract
agreement is within the jurisdiction of the arbitrators having regard to
the wide nature, scope and ambit of the arbitration agreement and they
cannot be said to have misdirected themselves in passing the award by
taking into consideration the conduct of the parties. It is also trite that
correspondences exchanged by the parties are required to be taken into
consideration for the purpose of construction of a contract.
Interpretation of a contract is a matter for the arbitrator to determine,
even if it gives rise to determination of a question of law. (See Pure
Helium India (P) Ltd. v. ONGC [(2003) 8 SCC 593] and D.D.
Sharma v. Union of India [(2004) 5 SCC 325] .)
113. Once, thus, it is held that the arbitrator had the jurisdiction, no
further question shall be raised and the court will not exercise its
jurisdiction unless it is found that there exists any bar on the face of
the award."
44. In the matter of Pure Helium India (P) Ltd. v. Oil & Natural Gas
Commission, reported in (2003) 8 SCC 593, the Hon'ble Apex Court held as
follows:-
"29. In State of U.P. v. Allied Constructions [(2003) 7 SCC 396 : (2003) 6
Scale 265] this Court held: (SCC p. 398, para 4)
"Interpretation of a contract, it is trite, is a matter for the arbitrator to
determine (see Sudarsan Trading Co. v. Govt. of Kerala [(1989) 2 SCC 38
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: AIR 1989 SC 890] ). Section 30 of the Arbitration Act, 1940 providing
for setting aside an award is restrictive in its operation. Unless one or
the other condition contained in Section 30 is satisfied, an award
cannot be set aside. The arbitrator is a judge chosen by the parties and
his decision is final. The court is precluded from reappraising the
evidence. Even in a case where the award contains reasons, the
interference therewith would still be not available within the jurisdiction
of the court unless, of course, the reasons are totally perverse or the
judgment is based on a wrong proposition of law. An error apparent on
the face of the records would not imply closer scrutiny of the merits of
documents and materials on record. Once it is found that the view of
the arbitrator is a plausible one, the court will refrain itself from
interfering."
45. The next issue decided was the counter-claim under the head dead
freight. The learned tribunal considered clauses 2 and 3 of the agreement. The
clauses are quoted below:-
"2. QUANTITY :
BPCI, shall-supply from Kochi refinery and HPL undertakes to
purchase a minimum quantity of 20 TMT of Naphtha +/- 10% at
Buyer's option every month during the validity period of the
agreement.
In case of an additional requirement of Naphtha quantity in any
month, the same will be decided on mutual consent of BPCL and HPL.
Loading of such quantity shall be governed by all the terms of this
agreement.
3. DEAD FREIGHT CLAUSE:
Dead freight loss due to quantity loaded below the cargo volume
nominated by the Buyer shall be on Seller's account. It shall be
calculated based on the difference between the actual per MT freight
incurred and the freight cost in case the buyer's nominated quantity
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had been loaded. (Total freight/loaded qty) - (Total freight/Buyer's
nominated Qty * Loaded Qty
In case of dead freight loss, if any, HPL shall send a debit note to
BPCL, payment of which to be done by BPCL through Electronic
Transfer within 7 days from the date of issuing of Debit Note.
Conversion rate would be as per RBI reference for the pricing period of
cargo."
46. Clause 2 provided that BPCL would supply from Kochi refinery and HPL
undertook to purchase minimum quantity of 20 TMT of Naphtha +/-10%, at
the buyers option, every month, during the validity period of the agreement. In
case of additional requirement of Naphtha in any month, the same would be
decided on mutual consent of BPCL and HPL. The loading of such quantity
would be governed by all the terms and conditions of the agreement. The dead
freight clause provided that loss suffered due to quantity of cargo loaded below
the agreed volume nominated by the buyer, would be on the seller's account. It
would be calculated based on the difference of rate between the actual per
metric ton freight incurred and the freight cost in case the buyer's nominated
quantity had been loaded i.e. [(total freight / loaded quantity), (the total
freight/buyer's nominated quantity x loaded quantity)]. In case of dead freight
loss, if any, HPL would issue a debit note to BPCL and payment would be done
by BPCL by electronic transfer within 7 days from the date of issuance of the
debit note. Conversion rate would be as per RBI's reference for the pricing
period of cargo. The tribunal came to the finding that the loss was suffered by
the seller due to loading of lesser quantity of cargo than what was nominated
by the buyer and should be borne by the seller. In the present case, the claim
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for dead freight was not in dispute. The claim for dead freight was in respect of
the voyage of M.T. Jag Padma (B/L dated December 03.12.2017). HPL was
bound to purchase a minimum quantity of 20 TMT of Naphtha +/- 10% every
month during the validity period of the agreement. In case of M.T. Jag Padma,
HPL sent an e-mail to BPCL on October 28, 2017 stating that it had planned
for 20 TMT +/- 10% of Naphtha during end of November, 2017. Another e-mail
was sent on December 2, 2017 to the vessel owner initially declaring the final
loadable quantity of subject vessel as 20350 MT, stating that the owner would
try to load close to 20500 MT on best endeavour. Accordingly, HPL declared a
loadable quantity of 20350 MT. Question No. 338, which was put to RW1, was
referred to in this context by the learned tribunal. The evidence referred to by
the tribunal indicated that at 13:03 hrs. on December 2, 2017, the Master of
vessel M.T Jag Padma sent an e-mail stating "message well received. As
instructed, Vessel will load to 7.60M FW Draft,. arrival Haldia ... Vessel makes
loadable for 7.60M FW draft - 20425 MT". The said e-mail was part of the
annexureS to the counter-statement. Question nos. 341 to 346 and 350 of the
Cross-examination of RW1 were referred to. It was found that the vessel owner
raised an invoice for lump sum freight charges for the above quantity,
amounting to $477067.50. Reference was made to the Affidavit of Evidence of
RW2. BPCL loaded 19971.88 MT. According to the tribunal, dead freight was
charged for the less amount loaded i.e., 453.12 MT. The short loading was
found to be lower than the margin of +/- 10% of 20 KT. HPL raised a claim for
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dead freight by an e-mail dated January 5, 2018 and in reply BPCL did not
contradict any of the facts relating to the claim. BPCL stated as follows :-
"At various times BPCL has accommodated the last moment request
(towards loading completion) for increasing the quantity nominated
earlier. This has been done in the spirit of reducing your dead freight, as
we were having product with us and there was scope of further loading in
your vessel. Keeping the same spirit in mind, we would request you to
kindly not consider the difference in quantity of the subject cargo, which
is well within the range of 20KT +- 10% for dead freight claims."
47. The above facts were available from the documents at pages 144-145 of
the annexures to the counter statement. The contention of HPL was that the
quantity nominated by HPL by an e-mail dated October 28, 2017, through the
Master of vessel, was 20425 MT. The same was well within the extra 2 KT of
Naphtha. HPL had the option to nominate such amount as per clause 2 of the
agreement. BPCL admitted the loading of 19971.88 MT of Naphtha. Thus, the
tribunal held that HPL was entitled to dead freight.
48. The question which the tribunal decided under the said head was
whether having regard to the provision of the contract, dead freight would be
payable and the learned tribunal came to the finding that despite the margin of
+/- 10% specified in clause 2, nothing had been mentioned about the range of
+/- 10% in clause 3. It only indicated that dead freight loss due to quantity
loaded below the agreed volume nominated by the buyer, would be on the
seller's account. Therefore, as per the understanding of the learned tribunal,
BPCL having loaded lesser quantity of cargo than what was nominated by the
buyer, was liable to pay the dead freight. The tribunal observed that the
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contract must be construed strictly. The reference to the margin of 10% +/- in
clause 2, was conspicuously absent in clause 3. The tribunal opined that the
omission seemed to be deliberate. Both the parties were prudent commercial
entities, having in-depth experience in trade and commerce with intelligent
advice available to them. The tribunal held that it was not required to supply
the omission in the language used in the contract in such context. The terms
in clause 2 and 3 were the real reflection of the intention of the parties. Thus,
BPCL's contention that the quantity supplied was within the margin of +/-10%
was not accepted by the tribunal, upon interpretation of clause 3. Clause 2
prescribed the accountability of BPCL to supply the quantity nominated by
buyer, at the option of the buyer. The buyer had the option to nominate any
quantity equal to 10% +/- of 20TMT. The seller was obligated to supply the
quantity nominated by the buyer. Thus, according to the tribunal, Clause 3
made BPCL liable for dead freight loss, on account of loading of less quantity of
cargo. The margin of +/- 10% of 20 TMT, could not be taken advantage of by
BPCL, when the quantity mentioned was at the option of HPL. This was the
finding of the learned tribunal and this Court does not find either any illegality
or unreasonableness in such finding. The findings are based on the
interpretation of the clauses, evidence of RW1 and RW2, the communication
between the parties and the communication of the vessel owner. The learned
tribunal came to a finding that the ultimate effect of the two clauses i.e. clause
2 and 3, were not in dispute. The intention of the parties were clear and would
manifest from the reply dated January 8, 2018, when BPCL requested HPL to
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waive the claim. There was nothing on record to show that BPCL had ever
disputed the claim or dealt with the same except in the e-mail dated January 8,
2018. BPCL's supply of 19971.88 MT against HPL's nomination of 20425 MT,
was not in dispute and the dead freight claim was equivalent to 6.4 lakhs.
HPL's calculation based on the formula at clause 3, was not accepted.
According to the learned tribunal, HPL could not claim anything more than
USD 9985.94 with interest. The findings are at paragraph 6.17 of the award.
"In the counter claim raised, HPL gave its calculation based on the
formula provided in Cl.3 of the agreement. It pointed out as below: Vessel
freight as per B/L USD 454350/19971.88 MT = USD 22.74/MT. Vessel
freight as per HPL nominated quantity USD 454350/20245MT = USD
22.24.
Dead freight : USD (22.74-22.24) x 19971.88 MT= USD 10079.56. But we
find that the figures USD 22.74-22.24 calculates to USD 0.5.
and loaded cargo 19971.88 x USD 0.5 works out to USD 9985.94.
Therefore HPL cannot claim anything more than USD 9985.94 ie: for INR
equivalent at the conversion rate as on 05 01 2018."
49. The next head of the counter claim was for demurrage. The same was
claimed on three counts. First claim was in respect of MT Jag Prerana (B/L
dated 03.06.2017), second was in respect of M.T. Sanmar Sonnet (B/L dated
31.07.2017 and 01.08.2017) and the third was in respect of M.T. Sanmar
Sonnet (B/L dated 30.09.2017). The learned tribunal relied on the submissions
of the parties and deemed it fit to look into the documents in support of the
demurrage claim of HPL. The tribunal's finding was based upon consideration
of respective documents relating to NOR and the Statement of Fact submitted
by the vessel owner. The Statement of Fact and NOR were not in dispute. The
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tribunal found that details relating to NOR, commencement of loading,
completion of loading , disconnection of the flange, berthing and release of
moorings were all available. All those documents were certified by the vessel
owner.
50. In respect of M.T. Jag Prerana (B/L dated 03.06.2017), the tribunal held
that although the demurrage hours at the load port were shown to have been
for 57.9 hrs. and the PDPR at 666.667, BPCL admitted 54.4 hrs. of demurrage.
HPL claimed demurrage on the basis of 58.22 hrs. From the different
correspondences exchanged, it was found that the vessel owner filed a claim
against HPL for 49.41 hrs. Such claim was available from the affidavit of
evidence of RW2. It was found that the vessel owner had reduced its claim
further to a total $33580.65 by an e-mail dated April 16, 2018, after deducting
TDS, which came to Rs. 21,61,476.55/. The evidence of RW2 was relied upon.
Such amount was found payable by BPCL.
51. In respect of M.T. Sanmar Sonnet (B/L dated 31.07.2017), it was found
by the learned tribunal that free lay time, demurrage rate, the events relating
to NOR commencement of lay time, cessation on free lay time and
disconnection of hose, were all admitted. BPCL admitted demurrage hours of 5
hrs. 17 minutes amounting to $4290, whereas HPL claimed $7732.29. It was
found that the vessel owner did not claim any demurrage taking into account
the lay time at the load port and discharge port. Thus, nothing was found
payable in respect of the said B/L.
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52. In respect of M.T. Sanmar Sonnet B/L dated 30.09.2017, the learned
tribunal found that free lay time, demurrage rate, notice of reduction,
commencement of lay time, cessation of free lay time and the hose
disconnection, were all admitted. The demurrage hour at the load port was
21.30 hours and the demurrage rate was $ 812.5, which amounted to $
17468.75. The vessel owner filed a claim against HPL by an e-mail dated
November 9, 2017, for a total of 10 hrs. 37 minutes and claimed $ 8626.04.
The evidence of RW2 and annexure C of BPCL's annexure to the rejoinder to
such claim were considered. Exhibit R11 i.e. the e-mail of BPCL dated
September 16, 2018, was duly considered. The e-mail stated as follows :-
"Due to sunken boat in the channel, CPT did not grant the Pilot for
berthing / sailing for all tankers during this period ... Thus claim falls
under force majeure clause and hence there is Nil demurrage."
53. The arguments of the learned counsel for BPCL were considered. BPCL
argued that the force majeure clause should be invoked in this case. Due to
unexpected circumstances, the delay had occurred. The learned tribunal
considered the document and came to the finding that BPCL had requested
HPL to waive the demurrage claim. Therefore, BPCL could not dispute liability
for demurrage by applying the force majeure clause. Clause 17 of the
agreement was considered. The same is quoted below :-
"17. FORCE MAJEURE CLAUSE:
If either of the parties to the contract is impended in abiding by the
contract terms by any circumstances of Force Majeure as hereunder
defined then the party who is impeded shall within seven days give notice
in writing to the other party together with evidence relied upon for the
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same and will agree postponement of the date of completion as may be in
all circumstances be considered reasonable.
For the purpose of this contract, Force Majeure shall mean and be
limited to the following:
a) Any war, invasion, act of foreign enemies, rebellion or
Hostilities
b) Any riot or civil commotion
c) Any Acts of God such as severe earthquake, typhoon
or Cyclone, flood, tempest, epidemic or other natural physical disasters
d) Any accident, fire or explosion
e) Strikes and lock outs beyond 14 consecutive calendar
days and beyond the reasonable control of the parties affected.
Should one or both the parties be prevented from fulfilling their
contractual obligations during the period of Force Majeure lasting
continuously for a period of one month, both the parties should consult
with each other regarding future implementations of this contract. Both
the parties shall cooperate fully to decide upon alternatives for meeting
commitments / course of action. Both the parties should consult with
each other regarding future commitments/course of action."
54. The tribunal held that neither had BPCL given the 7 days' notice in
writing to HPL nor was there any evidence to show that an agreement for
postponement of the date of completion of the loading, had been arrived at. It
was found that the force majeure clause did not include prohibition of berthing
and sailing imposed by CPT. In the absence of a notice invoking the force
majeure clause and in the absence of evidence of an agreement to postpone the
date of loading, the clause was not attracted. Such finding of the learned
tribunal should not be interfered with. The findings are based on facts and
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interpretation of the contract. The evidence discloses a request by BPCL to HPL
to withdraw the claim for demurrage. Clause 7 of the agreement was also
considered. The same is quoted below :-
"7. DEMURRAGE AND LAYTIME :
a. Demurrage (if any) at load port will be on BPCL account.
b. Total Allowed lay time at load port shall be Thirty Six (36) hours for a
parcel size of 20,000 MT. Total allowed lay time shall be increased or
decreased on prorata basis (SHINC) with actual loading quantity.
c. Lay time shall commence 6 hours after NOR (Notice of readiness) and
shall cease upon hose disconnection.
d. Any delays and time loss due load port limitation shall be on sellers
account.
e. In the eventuality of bad weather half time to count as used lay time on
time on demurrage.
f. Demurrage Rate shall be as per charter party. Any demurrage charge
incurred due to the delay in loading of the cargo at load port (Kochi) shall be
borne by the seller whereas any demurrage charge incurred subsequently
shall be borne by the buyer.
g. Buyer shall provide vessel owner's demurrage claim, PDPR (Per Day
Prorata), and debit note from HPL, regarding the final demurrage applicable
for load port within 90 days of completion of discharge of the cargo. Seller
will respond to the claim by acceptance or counter within 15 days of claim
failing which the Buyer's claim shall be deemed to have been accepted by
Seller and buyer shall raise debit note accordingly. Seller shall settle the
claim within 15 days from date of debit note."
55. Thus, in respect of Sanmar Sonnet (B/L 30.09.2017) HPL had paid Rs.
5,79,338.00/- against the vessel owner's claim. Therefore, the tribunal held
that, HPL was entitled to what was paid and nothing more. The tribunal
rejected the submission of the learned counsel for BPCL that, the claim for
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demurrage was in the nature of indemnity and subject to proof. The tribunal
was of the view that as per the contractual terms, demurrage was payable
under the circumstances prescribed under clause 7.
56. The last counter-claim was for risk purchase. Such claim was made on
the basis of clause 19 of the Agreement, which was the performance clause.
The clause is quoted below :-
"19. PERFORMANCE CLAUSE :
I. Subject to the clause 16 of the present agreement, in case the seller
fails to comply with the terms and conditions as mentioned under Clause
6 - Cargo/Laycan nomination, the Buyer shall in addition to any legal
remedies, be entitled to exercise the following option:
Risk purchase at seller's cost: To purchase from any other source
similar material. The price for such purchase shall be deemed
conclusively the best price, which the Buyer could obtain. To the price,
Buyer may add cost of procurement, if any, to arrive at the Procurement
price. If such price is higher than the price fixed for the lot as per the
contract terms, then seller has to compensate the Buyer for the loss
suffered. The compensation amount will be calculated as follows :
Compensation amount = (Procurement Price obtained from the market -
Contract Price considering last day of the laycan being the deemed B/L
date) x Buyer's Nominated Qty
II. Subject to the clause 16 of the present agreement in the event the
Seller fails to load to vessel within 2 days from the last date of the agreed
lay/can, the buyer in addition any other legal and commercial remedies
be entitled to exercise the following option:
Risk purchase at the seller's cost as defined.
Claim and recover Freight and Demurrage from the Seller in full,
Freight and Demurrage calculation shall be as per Charter Party terms.
HPL shall issue a debit note for the compensation amount, if any,
under the present clause to BPCL, payment of which to be done by BPCL
through Electronic Transfer within 15 days from the date of Debit Note.
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Conversion rate would be as per RBI reference for the pricing period of
cargo.
**** **** ****
III. Subject to the clause 16 of the present agreement, in the event the
Buyer fails to uplift the nominated quantity or uplifts cargo which is less
than the nominated quantity, the seller in addition to any other legal and
commercial remedies be entitled to exercise the following options:
a. Risk sale at buyer's cost: To sell to any other potential buyer. The price
for such sale shall be deemed conclusively the best price, which the seller
could obtain. To the price, Seller may add transaction cost, if any, to
arrive at the selling price. If such price is lesser than the price fixed for
the lot as per the contract terms, then Buyer has to compensate the
Seller for the loss suffered. The compensation amount will be calculated
as follows:
Compensation amount = (Selling Price obtained from the market -
Contract Price considering last day of the laycan being the deemed B/L
date) x Min contractual quantity or Balance contractual cargo quantity
not uplifted in MT, as agreed between the Buyer and the Seller.
BPCL shall issue a debit note for the compensation amount, if any, under
the present clause to HPL, payment of which to be done by HPL through
Electronic Transfer within 15 days from the date of issuing of Debit Note.
Conversion rate would be as per RBI reference for the pricing period of
cargo.
Without prejudice to the terms and conditions hereof defining ground for
claim of Force Majeure, it is further agreed that the Buyer or Seller shall
not be liable for any loss, claims or demands, of any nature whatsoever
or be deemed in breach of the Agreement, because of any delay or failure
in observing or performing any of the conditions or provisions of the
Agreement, if such delay or failure is caused by or arises out of any
action or order direct or indirect of the Government of India or any
agency thereof"
57. The dispute arose in respect of February / March consignment. BPCL
was unable to supply the specified quality of Naphtha. BPCL informed HPL that
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by mid-February, BPCL was going for export and therefore, no Naphtha was
available even for a lesser quantity than HPL's requirement of 30 KT of cargo by
February 10, 2018 and close to 40 KT by February 15, 2018. The subsequent
facts were gathered by the tribunal from the e-mails exchanged between the
parties. Those were dealt with at paragraph 8.3 of the award. The analysis of
the above e-mails indicated that BPCL was unable to supply the cargo even
during the extended period as it could not meet the parameters with regard to
the quality of the components of Naphtha. The relevant period was the laycan
period between March 4 and 5, 2018. BPCL had informed HPL about the test
results of the 22 KT of Naphtha to be loaded in HPL's vessel, having laycan
between 4 and 5 March, 2018. The report was considered by HPL and HPL
informed BPCL that the offered cargo was not as per the specifications and
could not be accepted. HPL expressed disappointment due to failure of BPCL to
supply cargo as per the contractual specifications at the last moment, which
had jeopardized HPL's procurement planning and operation. HPL requested
BPCL to advise on the next laycan to supply cargo which would meet the
contractual quality. Although, after much persuasion, HPL had taken approval
from their plant to deviate from the specification, HPL did not expect BPCL to
ship out the cargo without considering the requirement of a term customer.
BPCL did not advise on the next laycan as requested by HPL. Upon receiving no
offer from BPCL, HPL sent an e-mail to International Naphtha Suppliers,
enquiring about the possibility of spot supply of 25 KT +/- 10% of Naphtha to
be loaded in the first fortnight of April 2018. No reply was received to the said
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e-mail. Question Nos. 160 and 281, which were put to RW1 were referred to.
On March 15, 2018, trade confirmation was received from Saudi Aramco,
confirming the agreement entered into between Saudi Aramco and HPL. The
affidavit of evidence of RW2 was relied upon. The agreement was entered into
on March 14, 2018 for spot supply of 55 KT +/- 10% of Naphtha with laycan of
March 27, 2018. HPL informed BPCL by a letter dated March 17, 2018 that
since December, 2017, on account of BPCL's inability to supply the volume of
Naphtha required by the agreement, HPL's supply chain had been severely
affected. Even deviated quality of Naphtha, as per the specifications offered on
February 16, 2018, for the supply in March 2018, could not be provided by
BPCL. Therefore, HPL was compelled to opt for risk purchase to ensure feed
security to HPL's plant and requested for feedback for the next cargo
availability for April 2018. BPCL did not reply. On April 4, 2018, invoice was
raised by Saudi Aramco, for supply of 58 KT of Naphtha amounting to
$33807431.56. The findings of the learned tribunal are based on the e-mails
exchanged between the parties, duly supported by evidence of RW1 and RW2
and the exhibits. The learned tribunal came to the following conclusions :-
"8.8. The exchange of emails, as referred to above between the parties,
are all admitted and are part of the documents disclosed before the
tribunal. The next result of the above facts as available from the
correspondences discussed above appears to be as follows :-
a) That the shipment for February was due, but could not be supplied by
BPCL on account of its export commitments and the February 4-5 laycan
was shifted to March 4-5 laycan.
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b) HPL requested for 30KT for 4-5 March laycan and BPCL was agreeable
to confirm 35KT in that laycan.
c) HPL requested for further 30/40KT for the April 2018 laycan, but
BPCL informed that this April requirement of HPL would be in excess of
the quantity agreed to be supplied under the present agreement and that
such supply should be considered in terms of a new MoU.
d) By 16 02 2018 BPCL intimated quality parameters which were not in
line with the contractual parameters and requested for HPL's
acceptability.
e) HPL agreed to accept that deviated specification / quality without
precedence and requested for confirmation of firm quality specification
for future shipments.
f) Subsequently, by series of communications test results of the cargo to
be shipped for 4-5 March laycan were shared by BPCL admitting that
there was further deviation of the specification shared on 26 02 2018 and
requested for acceptability of HPL. BPCL also pointed out that it
understood the operational difficulties due to such changes and assured
that such deviation would not occur in future.
g) There was admission of deviation of specification by BPCL. Both the
parties admitted that there was deviation from the specified quality.
h) Ultimately, HPL could not accede to BPCL's request for acceptance of
further deviated quality offered on 26 02 2018. HPL also complained that
HPL did not expect BPCL to ship out that 16 02 2018 quality cargo
without any consideration of the requirement of a term customer.
i) Admittedly, February laycan shipment was postponed to 4-5 March
and then it had offered deviated quality on 16 02 2018 and then on 26
02 2018 offered further deviated quality of specification (than that of the
quality shared on 16 02 2018) about six days-before the 4-5 March 2018
laycan.
j) Admittedly, very less time was left for HPL for procurement planning for
its requirement in order to run its plant compelling HPL to decline the
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offer on the ground that the further deviated quality was unacceptable
for its plant.
k) In such circumstances, the option remained with HPL was to go for
risk purchase. This risk purchase materialised on 14 03 2018.
l) It also appears from the correspondences that the April laycan also did
not materialize.
m) According to BPCL, the April shipment required by HPL was outside
the quantity agreed in the agreement. BPCL informed that adjusting the
February supply due on 4-5 March since not materialized from the April,
supply of 20KT would be due to HPL under the current agreement.
n) HPL's request for next laycan for April 2018 by mail dated 26 02 2018
and 08 03 2018 were not responded to by BPCL.
o) It is also an admitted position that there were some more supplies in
July, 2018. However, BPCL insisted that these supplies should be in
terms of new MoU on the ground that the current agreement expired by
efflux of time with the expiry of April 2018.
p) In the circumstances, HPL, floated a global tender for purchasing the
specified quality of Naphtha. However, no response was received by HPL.
Ultimately HPL had to spot purchase from Saudi Aaramco 58KT of
Naphtha. This also did not match accurately with the specifications
agreed in the agreement. However, Mr. Choudhury contends that it was
similar to the specifications agreed in the agreement and better in quality
than that was offered last by BPCL for 4-5 March laycan. Whereas Mr.
Mitra contends that the quality of the offer made by BPCL was better
than that was purchased by HPL from Saudi Aaramco.
q) On this ground Mr. Mitra argues the point of mitigation with the
additional ground of non-purchase from Indian market resulting into
higher price of the cargo added with higher freight charges and customs
duties claimed by the respondent."
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58. The contentions of the learned counsel for BPCL that the full quantity
under the said agreement was supplied by BPCL within the extended period,
i.e., July 2018, in terms of the contract, was not accepted. It was held that
such supply was independent of the subject agreement. The tribunal observed
that clause 19 of the Agreement provided for risk purchase under three
situations. First, was the seller's failure to comply with the terms and
conditions mentioned under clause 6 relating to cargo laycan nomination.
Second situation was the seller's failure to load the vessel within 2 days from
the last date of agreed laycan and the third situation was the buyer's failure to
uplift the nominated quantity. In the present case, the second situation was
found to be applicable i.e. the seller failed to load the vessel within 2 days from
the last date of the agreed laycan. In the present case, the laycan was fixed
between March 4 to 5, 2018. BPCL was not in a position to supply the required
specification. It requested HPL to accept further deviated quality of Naptha,
much inferior to the quality disclosed on February 16, 2018. The tribunal held
that, BPCL was not in a position to load the agreed quality of cargo. HPL could
not be forced to accept the inferior quality. Therefore, according to the learned
tribunal, the second situation was attracted i.e. failure to load the vessel within
two days from the last date of laycan. Consequence of the failure of the seller
under situations 1 and 2 was risk purchase. Risk purchase was held to be the
result of default. The relevant paragraphs of the award are quoted below:-
"8.11. The consequences of seller's failure under situations 1 and Il is the
risk purchase. The risk purchase provisions are common in both
situations 1 and II. It deals with a particular instance of default in either
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of the situations. It is confined to seller's failure to fix laycan in the first
case and seller's failure to load the vessel within two days from the last
laycan date fixed in the second case. It is not dependent on the supply of
the total quantity agreed viz. 240KT +/- 10% under the agreement. It is
dependent on the quantity agreed for the laycan fixed and its default.
Under the terms of the contract Cl. 1 mentions the total supply as 240KT
+/- 10%. This amount is to be supplied in terms of Cl.2 being 20KT +/-
10% at buyer's option every month. In this case buyer had opted for
40KT for February and March 2018 since February 2018 cargo could not
be supplied by BPCL on account of its own export commitment. BPCL
agreed to supply on 4-5 March, 2018 laycan 30/35KT. Therefore,
subsequent delivery is immaterial. Section 19(II) sprang to action as
soon there was sellers failure to load within two days of the last laycan
date (05.03.2018). Therefore, whether the subsequent delivery was under
the same contract or not, is not necessary to be gone into.
8.12. The risk purchase in CI.9 (Il) is not confined only on the seller's
failure to load on arrival of the vessel. This clause is to be construed to
mean and include seller's failuba to load the vessel even when the seller
is not in a position to load on the laycan for arrival of the vessel with the
specified cargo agreed between the parties. The failure includes
incapacity to load or inability to load on the laycan date. In other words,
it is dependent on the readiness to load. The vessel will reach the load
port only if the seller informs the buyer that the seller is capable/ready to
load on the laycan date. Therefore, Mr. Mitra's argument that risk
purchase under situation II is attracted only when vessel reaches the
load port, cannot be accepted. Such an interpretation would fall foul of
prudent and good industrial practice and would be contrary to due
diligence on the part of the seller. Acceptance of such an interpretation
would render the risk purchase clause redundant in the given
circumstances, such as have happened in this case. Inasmuch as in
such a case in order to avail risk purchase the buyer would have to send
the vessel knowing fully well that the seller is unable and not in a
position to supply/load the agreed quality, incurring cost of charter
party.
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8.13. Mr. Mitra argues that the price of Saudi Aaramco Naphtha was
higher. Whether the price was higher or lower is immaterial in view of
Cl.19. Inasmuch as risk purchase entitles HPL to purchase from other
source similar material and it provides that the price of such risk
purchase shall be deemed conclusively the best price, which the buyer
could obtain.
8.14. Endeavour has been made by Mr. Mitra to argue that the Naphtha
purchased from Saudi Aaramco was inferior in quality. The burden of
proving BPCL's assertion that the quality of Saudi Aramco cargo inferior
to that of BPCL's last offered cargo was on BPCL. But BPCL has not given
any evidence on this fact. BPCL has not examined any witness on its
behalf to assert this fact. We have seen that BPCL had admitted that the
quality offered on 16 02 2018 was interior than the agreed quality and
this quality further deviated in its last otter and requested for HPL's
acceptability. The fact remains that the incidence of Risk-purchase
having occurred, Cl. 19-has been attracted. We, therefore, are bound to
follow the conditions provided in Cl.19. We can neither red something
(which is not there) in the Cluse, nor we can add or introduce something
into the Clause. In these circumstances we are to fall back on the
materials on record for deciding this question in terms of Clause 19. A
comparative table has been given both by Mr. Mitra and Mr. Choudhury
and it appears that there were certain parameters, which were better,
and the parameters of some were inferior. But the fact remains that
BPCL requested for acceptability of HPL of a deviated quality after its
inability to supply the agreed quality on account of its export
commitment. Even then, the quality deteriorated further from the quality
offered on 16 02 2018. HPL had agreed to accept the deteriorated quality
shared on 16 02 2018, after persuading its Plant, without creating
precedence. But BPCL shipped out that quality without reserving the
same for its term customer. But HPL could not persuade its plant to
accept the further deteriorated quality shared on 26 02 2018. It is HPL,
who would understand its necessity/operation security of the plant
situation. It cannot injure itself and take any risk to create disturbance
in the plant operation and/or jeopardizing its plant by accepting deviated
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quality only to mitigate the sufferance of BPCL. We have also noted that
BPCL had admitted that it understood the operational difficulties that
might arise due to such changes and assured that this would not occur
in future (pg. 91 & 92 RD).
8.15. Mr. Mitra also compares the parameters of the Saudi Aaramco
material and the deteriorated material offered by BPCL last and also
referred to various questions.
8.16. A comparative study of the specifications offered by BPCL and
Saudi Aramco shows that Saudi Aramco had lower Sulphur content and
hat parameter of IBP was not available in the test data of Saudi Aramco.
Whereas Saudi Aramco Naphtha was within the acceptable contractual
parameters unlike Naphtha offered by BPCL. Reid Vapour Pressure being
another important parameter was 6.1 psia for Saudi Aaramco and 12.5
psia for that offered by BPCL when the maximum limit was 12 psia.
Similarly, in case of Olefin the maximum permissible Vol% being 1.0 in
the agreement, was 0.8 Vol% in the Naphtha offered by BPCL whereas it
was only 0.03 Vol% in case of Saudi Aaramco Naphtha. That apart, BPCL
under the agreement was bound to supply the guaranteed specifications
and not similar material. Whereas third party procurement can be of
similar material.
8.17. Cl.19 refers to similar material. It does not say identical material.
BPCL, having created the problem, cannot force upon HPL to accept
further deteriorated material as similar material.
8.18. Mr Mitra's argument on this point cannot be sustained for
the reasons enumerated as hereafter. BPCL committed first breach by
informing HPL that due to its export commitment BPCL would not be
able to supply any quantity of agreed quality even in smaller size for
HPL"s February 2018 requirement (R-6 pg 104 RD). This was condoned
by HPL. HPL's request for laycan was fixed on 4-5 March 2018. On 16 02
2018 BPCL committed second breach by offering deviated quality (inferior
than the agreed quality, R-6 pg 97 8: 96 RD) for 4-5 March 2018 laycan.
This was also condoned by HPL by agreeing to accept the deviated quality
without creating any precedent. Not being able to deliver this cargo
offered on 16 02 2018, BPCL then committed third breach on 26 02 2018
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by offering further deviated quality (even inferior to that offered on 16 02
2018, R-6 pg 85-88 86 & 186-192). HPL attempted to condone this
breach also by requesting its plant to acknowledge acceptability, which
was declined by HPL's plant on the ground of plant safety (R-6, pg 85
RD). This consideration was highly technical. HPL was not expected to
take the risk of injuring itself jeopardizing its plant by accepting further
deviated quality. These defaults adversely affected HPL's procurement
planning for feeding the plant. At this juncture, only 6 days were left for
the 4-5 March laycan. After having committed breach thrice, BPCL
cannot force its further deviated quality offered on 26 02 2018 upon HPL
on the ground that that such deviated quality similar to the agreed
quality. The moment the third breach was committed by BPCL, the
incidence of risk purchase sprang into action in terms of Cl. 19 of the
agreement. Now it is no more open to BPCL to question HPL's risk
purchase on the ground that the BPCL's 26 02 2018 quality was similar
to or more similar than Saudi Aramco quality and argue that HPL's risk
purchase was not justified and that this risk purchase fell foul of the
principles of mitigation and as such HPL's risk purchase can not be
allowed. This argument seems to be an attempt to put the clock back,
inasmuch as once the incidence of risk purchase having occurred, CL.19
was activated and sprang into action by reason of clear and
unambiguous terms of the agreement.
8.19. Mr. Mitra argues vehemently on the HPL's failure to mitigate the
loss by not purchasing the same from Indian market incurring higher
freight and subjecting the cargo to customs duty. He submits that HPL
did not endeavour to reduce the cost and mitigate the damages. He relies
on AIR 1962 SC 366 [Muralidhar Chiranjilal vs. Harish Chandra
Das).The principles enunciated therein are settled principles of law. HPL
had the responsibility to mitigate the loss. At the same time, it is also
settled principle of law that in order to save the defaulting seller from
further damage, the buyer cannot injure itself and take the risk of
jeopardizing its plant operation. Such plant operation, in this case, is
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technical in nature and plant operators of HPL were the best judges to
decide whether such risk was worth taking.
8.20. Mr. Mitra also argues that no notice for risk purchase was given to
the claimant. This argument is also untenable. Cl. 19, nowhere in its four
corners, speaks for any notice to be given to the claimant before the risk
purchase. However, a notice dated 17 03 2018 was given by HPL to BPCL
at pgs. 106-107 of RD forwarded by a mail dated 20 03 2018 at 11:04 am
at pg. 105 of RD.
8.23. So far as market enquiry in the Indian market is concerned, a
general mail was issued by HPL inviting supply of the specified quality of
Naphtha, but no reply was received. We must also appreciate the time in
between was very short and HPL's plant would have been in jeopardy due
to collapse of procurement planning. There is no doubt that the situation
was emergent. It has come on evidence that HPL had enquired, but did
not enquire from ONGC, Hindustan Petroleum Corporation Ltd. (HPCL)
and Indian Oil Corporation Ltd. (IOCL). Mr. Mitra, in his argument, has
made a mountain out of this failure to enquire from ONGC, HPCL and
IOCL. This has been replied to by Mr. Choudhury that HPL already had
term agreement with IOCL and HPCL and that whatever quantities were
available for spot supply, did not meet HPL's quality specification.
8.24. Enquiries were made with respect to spot supply availability in
March 2018 with foreign (Q.92, 183-184 of RW-l's deposition) and
domestic suppliers (Q.125-127 of RW-1's deposition] as well as floating
an email enquiry to potential spot suppliers generally (Ext. C-14, initially
marked as C-ID-1 during Q.160 of RW-1's deposition). HPL did not
enquire about possibility of spot suppliers from Hindustan Petroleum
|Q.124 & 224 of RW-1's deposition] and IOCL [Q.124, 239-241 of RW-l's
deposition] because it already had term agreements with those
companies to purchase all the Naphtha meeting its required
specifications and whatever quantities they had with them for spot
supplies, did not meet HPL's quality specifications. HPL did not enquire
about the possibility of spot supply from ONGC [Q.123 & 126 of RW-1's
deposition] owing to the fact that ONGC supplies all the Naphtha meeting
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HPL's specifications to its own petrochemical company, OPAL. As a
result, after all enquiries, Saudi Aaramco matched as the only supplier
with spot supplies then available meeting HPL's immediate requirement.
According to Mr. Choudhury, HPL had acted reasonably in the given
circumstances and duly satisfied the test of reasonability as recognized
by the Hon'ble Supreme Court in M. Lachhia Setti & Sons Ltd. & Ors. vs.
Coffee Board | AIR 1981 SC 162 paragraphs 12-14).
***
8.27. In respect of mitigation, Mr. Choudhury argues that HPL was under
no obligation to injure itself, its character, its business or its property to
reduce the damages payable by BPCL, the wrong doer. "The question
what is reasonable for a plaintiff to do in mitigation of his damages is not
a question of law, but one of facts in the circumstances of each particular
case, the burden of proof being upon the defendant." Halsbury's Laws of
England V.10 para 143 pg.113 quoted in Muna Sona Sundaram Chettier
vs. Sona Theeanna Chockalingam Chettiar [AIR 1938 Madras 672]. The
same principle was also enunciated in Prafulla Ranjan Sarkar (supra)
and M. Lachhia Setti (supra). At the same time, HPL was not obliged to
accept inferior quality Naphtha from BPCL, which was rejected by its
plant, merely because the same would have reduced the damages
payable by BPCL. Such contention would amount to feeding the breach.
HPL commenced its search for that similar material only after validly
rejecting the cargo offered by BPCL. The decision in M/s. Muralidhar
Chiranjilal (supra) [paragraphs 4, 12 and13] is distinguishable, as in this
case the contract had become impossible of performance and the BPCL
had to prove the market rate for had similar goods, which the BPCL failed
to supply. provided the procurement cost of similar material which is
deemed conclusively the best price.
8.29 HPL claimed that the procurement price for 58326.86 KT of cargo
value adding the cost of freight, customs duty etc. converted into INR
comes to INR 249,28, 18,209.00 (R-8, page 109 RD). The details of cargo
value, freight invoice, cargo handling charges, on board charges, marine
insurance charges, custom duty etc and the payments made therefor are
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on record (Ext-R-8 pages 109 to 126). The procurement price for 30 KT
prorata works out to INR 128,21,63,077.00 (paragraph 28 CS). The
contract price for
30 KT cargo as per formula works out to INR 116,83,27,675.00
(paragraph 38 read with Annexure D at page 38, Affidavit Evidence of
RW-1 and para 26, CS). Thus applying the formula provided in Cl, 19,
the difference works out to INR 11,38,35,602.00.
8.30. In the circumstances as discussed above, we hold that HPL was
justified in resorting to CI.19 (I) for risk purchase in the given
circumstances for BPCL's inability or incapacity to supply even the
inferior quality material offered on 16 02 2018, which HPL did not expect
BPCL to ship out without any consideration of the requirement of a term
customer, and then offering further inferior quality material after having
failed to supply February commitment owing to BPCL's export
commitment compelling HPL to resort to risk purchase within a very
short span of time. Therefore, HPL is entitled to recover the difference
between the agreed price and the risk purchase price in terms of the
formula provided in C1.19 (t) applicable to C1.19 (II) adding to the
purchase price being deemed conclusively the best price the cost of
procurement together with freight, customs duty etc. proportionate to
30KT out of 58KT spot purchase pro rata on all these counts. HPL shall
also be entitled to interest at the rate as agreed in Cl. 5 from 15 days
after the raising of the debit note by HPL after 26.04.2018 (the date of
payment to Saudi Aramco) till the date of Award."
59. Such findings of the learned tribunal are also based on the materials on
record and the understanding of the clauses of the contract. The explanation of
BPCL in not being able to supply either the quality of Naphtha that was
originally agreed or the quality with deviations which was later agreed, were
considered and rejected with reasons. BPCL asked HPL to agree to accept a
further low quality of Naphtha which was found to be contrary to the agreed
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terms and the nomination of the buyer. Thus, it was held that as the seller
could not ensure supply of the quality of Naphtha that was nominated, the risk
purchase clause would be applicable, irrespective of whether a higher price was
paid to Saudi Aramco and in spite of there being other sellers of Naphtha in the
country or even if the quality supplied by Saudi Aramco was worse than the
quality offered by BPCL. Whether the vessel was actually berthed or not, could
not be relevant in view of the unreadiness to supply. With regard to the
quantity of Naptha supplied later, it was found that the same was not
connected with the cargo involved in the risk purchase.
60. The issues have been discussed in details, as above. Some important
judicial authorities are discussed to test whether the award is liable to be set
aside upon application of the ratios laid down.
61. The Hon'ble Apex court in OPG Power Generation Private Limited vs
Enexio Power Cooling Solutions India Private Limited and Anr. reported in
2024 SCC Online SC 2600, upon discussing the decisions rendered earlier on
such issue held that, an award could not be said to be against public policy of
India if there was a mere infraction of the municipal laws of India. For an
award to be in contravention with the public policy of India, there must be
infraction of the fundamental policy of Indian law including a law meant to
serve public interest or public good. Such situation has not arisen in the
instant case.
62. In Oil and Natural Gas Corporation LTD. (ONGC) v. Saw Pipes Ltd.
reported in (2003) 5 SCC 705 it was held that when an award was patently in
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violation of statutory provisions, the same would be contrary to public interest.
Such an award was likely to adversely affect the administration of justice. An
award could be set aside on the ground of patent illegality, if it was so unfair
and unreasonable that it shocked the conscience of the court. Such award
would be adjudged as opposed to public policy. As discussed earlier, this court
does not find that the award shocks its conscience.
63. In Associate Builders vs Delhi Development Authority reported in
(2015) 3 SCC 49, the Hon'ble Apex court held that the principle of audi
alteram partem was undoubtedly a fundamental juristic principle in Indian law.
It was held that disregarding orders of superior courts or the binding effect of
the judgment of a superior court, would also be regarded as being contrary to
the fundamental policy of Indian law. It was further elaborated that when a
finding was based on no evidence or an arbitral Tribunal took into account
something irrelevant to decide the issues or ignored vital evidence while
arriving at its decision, such decision would necessarily be perverse. To this, a
caveat was added by observing that when a court applied the public policy test
to an arbitral award, it should not act as a court of appeal and consequently
errors of fact could not be corrected. Similarly, a possible view of the
arbitrators on facts also could not be corrected as the arbitral tribunal was the
master of the quality and quantity of evidence and the facts. The quality of the
evidence, that is, the evidence was up to the expectation of a judicially
trained mind, would not per se render an award vulnerable. Thus, if the
arbitral Tribunal's approach was neither arbitrary nor capricious, the tribunal
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would have the last word on facts and evidence. The court finds that the
approach of the learned tribunal was reasonable and not arbitrary.
64. The Hon'ble Apex court in Ssanyong Engineering and Construction
Company Limited vs National Highway Authority of India reported in
(2019) 15 SCC 131, held that the award would be vulnerable if patent illegality
appeared on the face of the award and such illegality went to the root of the
matter. If an arbitral tribunal wandered beyond the contract and dealt with
matters not referred, would also be a jurisdictional error and the award could
be set aside on the ground of patent illegality. This is not such a case.
65. In view of the discussions which have been made in the foregoing
paragraphs with regard to the manner in which the arbitral tribunal had dealt
with the claim of the petitioner and the counterclaim of the respondents, this
court does not find that justice has been denied, inasmuch as, the award so
passed has neither shocked the conscience of the court nor is the award
patently illegal.
66. In paragraph 59 of OPG (supra), the Hon'ble Apex Court discussed
morality. Morality was also held to be akin to shocking the conscience of the
court. In paragraph 60, patent illegality was discussed and it was held that if
an award patently violated statutory provisions, it would be against public
interest and thus the award could be set aside on the ground of patent
illegality.
67. Perversity as a ground of challenge was discussed in paragraphs 63 to
67. It was held that the decision of the tribunal should be so irrational that no
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reasonable man could have arrived at such a finding. Paragraph 63 to 67 are
quoted below:-
"63. Perversity as a ground for setting aside an arbitral award was
recognized in Western Geco (supra). Therein it was observed that an
arbitral decision must not be perverse or so irrational that no reasonable
person would have arrived at the same. It was observed that if an award
is perverse, it would be against the public policy of India.
64. In Associate Builders (supra) certain tests were laid down to
determine whether a decision of an arbitral tribunal could be considered
perverse. In this context, it was observed that where: (i) a finding is based
on no evidence; or (ii) an arbitral tribunal takes into account something
irrelevant to the decision which it arrives at; or (iii) ignores vital evidence
in arriving at its decision, such decision would necessarily be perverse.
However, by way of a note of caution, it was observed that when a court
applies these tests it does not act as a court of appeal and, consequently,
errors of fact cannot be corrected. Though, 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.
It was also observed that an award based on little evidence or on
evidence which does not measure up in quality to a trained legal mind
would not be held to be invalid on that score.
65. In Ssangyong (supra), which dealt with the legal position post 2015
amendment in Section 34 of the 1996 Act, it was observed that a decision
which is perverse, while no longer being a ground for challenge under
"public policy of India", would certainly amount to a patent illegality
appearing on the face of the award. It was pointed out that an award
based on no evidence, or which ignores vital evidence, would be perverse
and thus patently illegal. It was also observed that a finding based on
documents taken behind the back of the parties by the arbitrator would
also qualify as a decision based on no evidence in as much as such
decision is not based on evidence led by the parties, and therefore, would
also have to be characterized as perverse,
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66. The tests laid down in Associate Builders (supra) to determine
perversity were followed in Ssyanyong (supra) and later approved by a
three-Judge Bench of this Court in Patel Engineering Limited v. North
Eastern Electric Power Corporation Limited.
67. In a recent three-Judge Bench decision of this Court in DMRC
Ltd. v. Delhi Airport Metro Express (P) Ltd. [DMRC Ltd. v. Delhi Airport
Metro Express (P) Ltd., (2024) 6 SCC 357 : (2024) 3 SCC (Civ) 112 : 2024
INSC 292] , the ground of patent illegality/perversity was delineated in
the following terms : (SCC p. 376, para 39)
"40. In essence, the ground of patent illegality is available for setting
aside a domestic award, if the decision of the arbitrator is found to be
perverse, or so irrational that no reasonable person would have arrived at
it; or the construction of the contract is such that no fair or reasonable
person would take; or, that the view of the arbitrator is not even a
possible view. A finding based on no evidence at all or an award which
ignores vital evidence in arriving at its decision would be perverse and
liable to be set aside under the head of "patent illegality". An award
without reasons would suffer from patent illegality. The arbitrator
commits a patent illegality by deciding a matter not within its jurisdiction
or violating a fundamental principle of natural justice."
68. Scope for interference with an arbitral award was discussed in paragraph
68 and 69 which are quoted below:-
"Scope of interference with an arbitral award
68. The aforesaid judicial precedents make it clear that while exercising
power under Section 34 of the 1996 Act the Court does not sit in appeal
over the arbitral award. Interference with an arbitral award is only on
limited grounds as set out in Section 34 of the 1996 Act. A possible view
by the arbitrator on facts is to be respected as the arbitrator is the
ultimate master of the quantity and quality of evidence to be relied upon.
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It is only when an arbitral award could be categorised as perverse, that
on an error of fact an arbitral award may be set aside. Further, a mere
erroneous application of the law or wrong appreciation of evidence by
itself is not a ground to set aside an award as is clear from the provisions
of sub-section (2-A) of Section 34 of the 1996 Act.
This extract is taken from OPG Power Generation (P) Ltd. v. Enexio Power
Cooling Solutions (India) (P) Ltd., (2025) 2 SCC 417 : 2024 SCC OnLine
SC 2600 at page 473
69.In Dyna Technologies [Dyna Technologies (P) Ltd. v. Crompton
Greaves Ltd., (2019) 20 SCC 1, paras 27-43] , a three-Judge Bench of
this Court held that courts need to be cognizant of the fact that arbitral
awards are not to be interfered with in a casual and cavalier manner,
unless the court concludes that the perversity of the award goes to the
root of the matter and there is no possibility of an alternative
interpretation that may sustain the arbitral award. It was observed that
jurisdiction under Section 34 cannot be equated with the normal
appellate jurisdiction. Rather, the approach ought to be to respect the
finality of the arbitral award as well as party's autonomy to get their
dispute adjudicated by an alternative forum as provided under the law."
69. In Paragraph 71.1 of OPG (supra), it was held that, in order to avoid
being vulnerable to challenge, the tribunal's reasons must deal with all the
issues that were put to it. It should set out the finding of facts and its reasons
so as to enable the parties to understand them and state how particular points
were decided. The tribunal was required to set out not only its views, but also
make it clear that it had considered the alternative version and had rejected
such version. The said paragraph is quoted below :-
"71.1 As to the form of a reasoned award, in Russell on Arbitration (24th
Edition, Page 304) it is stated thus :
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"6.032. No particular form is required for a reasoned award although 'the
giving of clearly expressed reasons responsive to the issues as they were
debated before the arbitrators reduces the scope for the making of
unmeritorious challenges'. When giving a reasoned award the tribunal
need only set out what, on its view of the evidence, did or did not happen
and explain succinctly why, in the light of what happened, the tribunal
has reached its decision, and state what that decision is. In order to
avoid being vulnerable to challenge, the tribunal's reasons must deal
with all the issues that were put to it. It should set out its findings of fact
and its reasoning particular points were decisive. It should also indicate
the tribunal's findings and reasoning on issues argued before it but not
considered position with respect to appeal on all the issues before the
tribunal. When dealing with controversial matters, it is helpfulfor the
tribunal to set out not only its view of what occurred, but also to make it
clear that it has considered any alternative version and has rejected it.
Even if several reasons lead to the same result, the tribunal should still
set them out. That said, so long as the relevant issues are addressed
there is no need to deal with every possible argument or to explain why
the tribunal attached more weight to some evidence than to other
evidence. The tribunal is not expected to recite at great length
communications exchanged or submissions made by parties. Nor is it
required to set out each step by which it reached its conclusion or to deal
with each and every point made by the parties. It is sufficient that the
tribunal should explain what its findings are and the evidential route by
which it reached its conclusions."
70. The award, which has been scrutinized in detail, indicates that the
contentions of the petitioner were taken into consideration and applied in the
context of the terms and conditions of the contract. As long as the relevant
issues have been addressed, the award is sustainable on the ground of
adequacy of reasons. It is sufficient if the tribunal explains what the findings
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are and the evidence on the basis of which the conclusions have been arrived
at. An award will pass the test of being a reasoned award, if it reads properly,
is intelligible and adequate.
71. Paragraph 72 of OPG (Supra) laid down that, if the conclusion of the
arbitrator was based on a possible view of the matter, the court should not
interfere. It was further held that an arbitral tribunal had the jurisdiction to
interpret a contract, having regard to the terms and conditions of the contract,
conduct of the parties, correspondences exchanged, circumstances of the case
and pleadings. The relevant paragraph is quoted below:-
"72. An Arbitral Tribunal must decide in accordance with the terms of
the contract. In a case where an Arbitral Tribunal passes an award
against the terms of the contract, the award would be patently illegal.
However, an Arbitral Tribunal has jurisdiction to interpret a contract
having regard to terms and conditions of the contract, conduct of the
parties including correspondences exchanged, circumstances of the case
and pleadings of the parties. If the conclusion of the arbitrator is based
on a possible view of the matter, the Court should not intefere [ See
: SAIL v. Gupta Brother Steel Tubes Ltd., (2009) 10 SCC 63 : (2009) 4
SCC (Civ) 16; Pure Helium India (P) Ltd. v. ONGC, (2003) 8 SCC
593; McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11
SCC 181; MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC
(Civ) 293] . But where, on a full reading of the contract, the view of the
Arbitral Tribunal on the terms of a contract is not a possible view, the
award would be considered perverse and as such amenable to
interference."
72. The submissions of Mr. Bose with regard to the illegality in the award do
not pass the tests which have been laid down in the above judicial authorities.
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73. In Dyna Technologies Private Limited vs. Crompton Greaves Limited
reported in (2019) 20 SCC 1, a Three-Judge Bench of the Hon'ble Apex Court
held that the jurisdiction under section 34 of the said Act could not be equated
with the normal appellate jurisdiction. Rather, the approach would be to
respect the finality of the arbitral award as well as the party's autonomy to get
the dispute resolved by an alternative forum as provided in law. In the said
decision, the Hon'ble Apex Court also held that the award was amenable to
challenge if no reasons were recorded or the reasons recorded were
unintelligible, improper and revealed a flaw in the decision making process.
The scope of interference of the courts on the interpretation or the construction
of the contract by the tribunal was also discussed in the said decision and it
was held that the Courts should not interfere when the view of the arbitral
tribunal on the terms of the contract was a possible view. It was further
observed that the arbitral Tribunal had the jurisdiction to interpret a contract
having regard to the terms and conditions of the contract, conduct of the
parties, the correspondences exchanged, circumstances of the case and
pleadings.
74. The reference to British Shipping Laws, definition of laytime, laycan, and
shipment period in FOB sales, and the authority cited by Mr. Bose, are not
relevant in the present context. The difficulties which arose in practice, when
parties to a FOB contract used the words laytime or laycan, to indicate the date
of shipment, were deliberated upon. In the case in hand, although the
expressions laycan and laytime were used in the contract, the counter claims
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were allowed, on the interpretation of the clauses of the contract. The definition
of laycan in the context of risk purchase to contend that, as the vessel had
never arrived, BPCL could cancel, was found irrelevant in view of clause 19.
The learned Tribunal clearly held that, the circumstances to allow the counter
claim under the head risk purchase in terms of clause 19 of the contract,
existed. The seller was not in a position to supply the quality of goods either
within the dates which were settled or thereafter and could not even advise as
to when the cargo would be available. Under such circumstances, the Tribunal
found from the evidence that, HPL had no other alternative, but to approach
Saudi Aramco for spot purchase.
75. McDermott International Inc. v. Burn Standard Co. Ltd. reported in
(2006) 11 SCC 181, does not support the case of the petitioner.
76. PSA SICAL Terminals (P) Limited vs Board of Trustees of V.O.
Chidambar Port Trust Tuticorin reported in 2021 SCC Online SC 508 is
also a decision on the tribunal's authority to interpret a contract and the
correspondence exchanged by the parties. The subject award, as already
discussed above, has taken into consideration the contractual terms and the
correspondence exchanged between the parties. Oral and documentary
evidence have been considered. Weighing of evidence by this court cannot be
permitted. The tribunal is the best judge in respect of both quality and quantity
of evidence.
77. In Steel Authority of India Limited versus M/s TLT Engineering
India Private Limited and Anr., the Hon'ble Court held that, a court
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exercising jurisdiction under Section 34, of the said Act, could not undertake
an adjudication, so as to supply reasons in support of an award or supplement
the reasons of the arbitral tribunal. In this case, the court is not required to
justify the findings arrived at by giving additional reasons and further
interpretations.
78. The decisions Rajinder Kumar Kindra vs Delhi Administration
through Secretary (Labour) & Ors. reported in (1984) 4 SCC 635 and K.P.
Poulose vs State of Kerala reported in (1975) 2 SCC 235 have no relevance.
79. The award is based on reasons, appreciation of evidence, both oral and
documentary and interpretation of the contract. The award refers to the
answers to the relevant questions put to RW1 and RW2. The award deals with
the correspondence between the parties. Each issue was dealt with separately
and decided. The findings are intelligible, adequately reasoned and sound.
80. Under such circumstances, this application is dismissed. GA COM 2 of
2024 is accordingly disposed of. The award is upheld.
Later
81. Learned Advocate for the petitioner prays for stay of the award. The
prayer for stay is refused.
Urgent Photostat certified copies of this judgment, if applied for, be
supplied to the parties upon fulfillment of requisite formalities.
(Shampa Sarkar, J.)
