Mesco Airlines Ltd. vs M/S. Aviaexport And Ors.
2012 Latest Caselaw 2145 Del

       IN THE HIGH COURT OF DELHI AT NEW DELHI

                         O.M.P. 400/2005

                                         Reserved on: March 1, 2012
                                         Decision on: March 29, 2012

       MESCO AIRLINES LTD                         ..... Petitioner
                    Through: Mr. Harish Malhotra, Senior Advocate
                             with Mr. R.K. Modi, Advocate.


                                versus


       M/S. AVIAEXPORT AND ORS                  ..... Respondents
                     Through: Mr. Vineet Malhotra with
                              Mr. Rohan Sharma, Advocates.

        CORAM: JUSTICE S. MURALIDHAR

                              JUDGMENT

29.03.2012

1. The challenge in this petition by Mesco Airlines Limited ('MAL')

under Section 34 of the Arbitration and Conciliation Act, 1996 ('Act') is

to the impugned Award dated 22nd August 2005 being the majority award

of two of the learned Arbitrators constituting the three-member Arbitral

Tribunal ('Tribunal') adjudicating the disputes between the Petitioner and

Respondent No. 1 M/s. AviaExport.

2. It is stated that the Petitioner was to start a new venture of providing

helicopter services to various organizations in India and in particular to

the Oil and Natural Gas Commission ('ONGC'), a Government of India

undertaking, which required helicopters to transport its oil exploration

specialists and stores for off-shore operations in the Mumbai High Sea.

3. The essential requirements stipulated by the Director General of Civil

Aviation ('DGCA') for granting licence for flying an helicopter were as

follows:

(a) The helicopter should have emergency floatation gear; and

(b) It should meet the requirement to operate under outside air

temperature of 35-45 ºC.

4. The Petitioner entered into a contract with Respondent No. 1 for wet

lease of 1 MI-172 helicopter and for sale of 5 MI-172 helicopters.

Contract No.76044/32299 dated 28th April 1994 between the parties

provided "for delivery (by sale) of one MI-172 helicopter to Mesco

Airlines Limited, New Delhi India and lease out of one MI-172 helicopter

to Mesco Airlines Limited, New Delhi, India." Clause 1.1 stipulated that

"the duration of helicopter lease shall be two years. The lease period shall

commence from the day the said helicopter actually commences its

operation for the company." Under Clause 5.14, the date of signing the

said technical acceptance report was considered to be the date of putting

the MI-172 helicopter into operation with the company. However, the

leased helicopter was deemed to have been put into operation "only after

the receipt of necessary approval from the Director General of Civil

Aviation (DGCA) to fly the same in India." Clause 6.2 of the contract

indicated the maintenance schedule of the leased helicopter, and the

inspection time. For 25 hours, there was to be an inspection time of two

hours; for 50 flying hours, the inspection time was one day; for 100 hours,

two days and for 200 flying hours, the inspection time was 3 and half

days. Clause 6.3.1 required that the MI-172 helicopter would fly six days

per week, if weather conditions so permitted and according to the relevant

Indian Flying Rules. The number of working hours for the flying crew

was not to exceed 42 hours per week. Under Clause 6.1.1 for operation of

the leased helicopter, Respondent No. 1 was to provide licenced and

experienced pilots and a maintenance team. The said persons were to be

and remain employees of Respondent No. 1. Under Clause 9.1, the lease

operation and obligations of the parties under the contract "shall be

deemed automatically terminated as soon at the leased helicopters and the

Avia goods involved cross the Indian border". The leased helicopter was

to be operated "during two calendar years of putting it into operation and

upon termination of operation the duration of the contract is to be

extended for the period reasonably required for customer clearance and

demobilization of the helicopter, Avia goods involved and the contractor's

flight and maintenance crews." Clause 14 dealt with the terms of

payment for the leased helicopters. Under Clause 14.1.3 a fixed amount of

US $ 45500 (i.e. for 50 hours at the rate of USD 650) would be

automatically paid by the Petitioner at the end of each 30 day period from

the date of receipt of invoice for each 30 days period after the first three

months of operation till the end of lease period regardless of the actual

hours flown. Under Clause 17 the disputes were to be referred to an

arbitration committee of three Arbitrators appointed by Indian Council of

Arbitration ('ICA').

5. As regards the main contract, the Petitioner herein (Respondent before

the Arbitral Tribunal) was to deposit USD 70,000 with Respondent No. 1

(Claimant before the Arbitral Tribunal) one month prior to the delivery of

the leased helicopter. The said amount was to be deducted from the first

three monthly payment of USD 97500 and thereafter, till the end of the

leased period USD 45,500 was to be charged per month regardless of the

actual hours flown, however, an additional amount of USD 650 per hour

had to be paid if the helicopter flew hours in excess of the period stated in

paras 14.1.2 and 14.1.3 of the contract. All the spares and consumables

were to be supplied by Respondent No. 1 at its own expense. The lease

period was for two years. It was agreed that all fuel consumed during

flight and during any ground running was to be paid by the Petitioner. The

Petitioner was also required to provide a first class bank guarantee of 1

lakh USD in favour of Respondent No. 1 confirming the payments to

Respondent No. 1 of flying charges as agreed between the parties.

6. According to Respondent No. 1, the operation of the leased helicopter

commenced on 11th December 1994. Respondent No. 1 raised several bills

in regard to its balance dues. However, the Petitioner did not pay the

balance lease money and Respondent No. 1 raised a claim of USD

201,529.95 on account of lease money due from July to November 1996.

This formed subject matter of Claim No. 1 before the Arbitral Tribunal.

7. Claim No. 2 was for a sum of USD 1,29,750 in respect of the

helicopter that was sold. The price of the said helicopters was fixed at

USD 25,95,000. In terms of the agreement between the parties, 95% of

the total cost was to be paid by the Petitioner against presentation of the

shipping documents and the balance 5% against presentation of invoice

and technical acceptance report. According to Respondent No. 1, it

received only 95% of the price and the balance 5%, i.e., USD 1,29,750

has still not been paid to Respondent No. 1.

8. Claim No. 3 was for a sum of USD 3,96,017.56 arising out of the

Contract No. 76045/35699 dated 10th February 1995 whereby Respondent

No. 1 agreed to sell the Petitioner five helicopters at a price of USD

1,57,45,709.20. The price of each helicopter was USD 2,980,000 and the

total value of the contract therefore, was reduced to USD 1,57,45,709.20.

According to Respondent No. 1, the goods shipped were more than USD

2,15,385.87. Since the goods shipped were more than the value of the

actual invoices, Respondent No. 1 sent further invoices for payment.

9. According to Respondent No. 1, the Petitioner had to pay for the spare

parts which were supplied under the above contract to the extent of USD

6,62,755.63. Claim No. 4 related to the balance payment towards the

price for spare parts supplied to Respondent No. 1.

10. It was the case of Respondent No. 1 that Petitioner neither paid the

above amounts nor returned the leased helicopter. It is stated that the

leased helicopter was returned only in terms of the orders passed by this

Court. Further, as noted in the order dated 12th September 2000 of this

Court, Respondent No. 1 paid the entire dues of Rs. 13,06,820 to the

Airport Authority of India ('AAI') at the time of release of the helicopter.

11. Before the learned Tribunal, the Petitioner herein filed its counter

claims. The case of the Petitioner was that leased helicopter could be

made operational only on 24th May 1995. According to the Petitioner, due

to lack of maintenance, operations of the leased helicopter had come to a

grinding halt and the liquidated damages ('LD') had to be paid to Pawan

Hans. It is contended that the date of commencement of lease was 24th

May 1995 and not 11th December 1994. Respondent No. 1 had not

adjusted the amount for the period during which the helicopter was not

flying. It was claimed that what was due to Respondent No. 1 was USD

2,01,529.95 minus USD 40,932.00 = USD 1,60,660.95. Even this

payment was to be made by the Petitioner only after adjustment of the

losses incurred by Petitioner on account of breaches of the contract by

Respondent No. 1.

12. The Petitioner claimed Rs. 5,99,03,400 towards LD (Counter Claim

No.1), Rs. 13,06,820/- towards housing and parking charges of the leased

helicopter (Counter Claim No.2) and Rs. 5,00,71,600 towards losses due

to idling of helicopter during warranty period due to failed component and

their delayed/non-replacements (Counter Claim No.3). The Petitioner

also claimed interest @ 24% on the above amounts with past and

pendente lite interest (Counter Claim No.4) and Rs. 5 lakhs as cost of

arbitration (Counter Claim No.5). It was also prayed that the claim made

in Rupees may be converted into USD. Consequently, before the learned

Tribunal Respondent No. 1 filed four claims and the Petitioner filed five

counter claims. Affidavits by way of evidence were filed by both the

witnesses.

13. As regards Claim No. 1 by Respondent No. 1 for USD 2,01,529.95

towards balance lease rentals of the leased helicopter, the principal

question that arose for determination was the date from which the lease

rentals for the leased helicopter became payable. The Tribunal referred to

two letters dated 1st July 1995 and 7th August 1995 written by the

Petitioner to Respondent No. 1 admitting that the helicopter had started its

operation on 12th December 1994. By its letter dated 21st January 1996

written by the Petitioner to the Reserve Bank of India ('RBI'), the

Petitioner stated that the certificate of airworthiness was issued to the

helicopter on 11th December 1994 and that the period of lease commenced

on that date itself. The Tribunal also noted that during the month of May

1996 the Respondent No. 1 had raised a bill for 69.81 hours where the

actual flying hours were 72.03 hours. In March 1996 the helicopter had

flown for 81.40 hours whereas Respondent No. 1 raised the bill only for

77.52 hours. For August and September 1996 again the actual flying

hours were for more than the bills raised by Respondent No. 1. Even the

admitted liability for of USD 16,060.95 had not been paid by the

Petitioner to Respondent No. 1. It was held that since the Petitioner had

flown the helicopter for more than 70 hours per month which was the

minimum guarantee flying hours under Clause 14.1.3 of the contract,

there was no question of any deduction of USD 10,06,000.

14. Assailing the above finding, it was submitted by Mr. Harish

Malhotra, learned Senior counsel for the Petitioner, that Clause 6.3.1 of

the contract which related to the working hours for the flying crew was

mandatory and the helicopter could not fly beyond those hours per week.

He submitted that the DGCA granted final clearance for the helicopter

only from 24th May 1995. According to him, Clause 14.1.3 of the

contract dated 28th April 1994 talked of the liability of the Petitioner for a

fixed amount in respect of the actual number of flying hours. He referred

to the letter dated 19th April 1996 written by the Petitioner to Respondent

No. 1 and pointed out that Petitioner had stated clearly therein that the

helicopter had flown in the month of March 1996 for 77 hours 52 minutes.

The helicopter was grounded for five days from 6th to 10th March 1996

and therefore, an amount of USD 2274 had to be deducted. Likewise the

Petitioner by its letter dated 10th October 1996 pointed out that the

helicopter had been grounded for seven days from 4th to 9th September

1996 and on 15th September 1996 and accordingly claimed USD 10,612

as deduction. By a letter dated 5th November 1996 the Petitioner pointed

out that during October 1996 the helicopter had been grounded for six

days and USD 9096 was claimed as deduction.

15. Mr. Vineet Malhotra, learned counsel for the Respondents on the

other hand relied upon two letters of the Petitioner which clearly showed

that commercial operations of the leased helicopter had commenced on

12th December 1994. He referred to each of the flying logs of the

helicopter, which had been referred to in the majority Award, to show that

actual bills were raised by Respondent No.1 for less than the actual flying

hours. The Award of the dissenting member had accepted the contention

of the Petitioner herein that under Clause 6.3.1 there was a restriction on

the Petitioner flying more than 42 hours and therefore, the Petitioner was

justified in claiming reduction for the period of grounding of the

helicopter for more than what was authorized under the contract and

which deductions were never refuted by the Respondent No.1.

16. The above submissions as regards Claim No.1 have been considered.

The claim turns on the interpretation of two clauses of the contract, i.e.,

Clause 6.3.1 under which the number of flying hours for the crew was not

to exceed 42 hours and Clause 14.1.3 which talks of the minimum

guarantee to be paid by the Petitioner.

17. As regards the first plea of the Petitioner that lease had commenced

only from 24th May 1995, the majority Award correctly deduced from the

Petitioner's own letter dated 7th August 1995 to Respondent No. 1 and the

letter dated 10th December 1996 to the RBI that even according to the

Petitioner, commercial operation of the leased helicopter commenced on

12th December 1994. The relevant portion of letter dated 7th August 1995

reads as under:

"Following has been the schedule of the helicopter's operations in chronological order:

1. Operations commenced on 12th December 1994.

2. Helicopter in operation from 12th December 1994 till 23rd of February.

3. Helicopter grounded due to non-availability of the air (Capt. Said hospitalized) from 23rd February to 5th March 1995.

4. Helicopter grounded due to fitment of floatation system, ELT and Two ULBs from 5th March to 28th April 1995."

18. The cross-examination of the witness, Mr. D.V.S. Trehan, for the

Petitioner also indicates that the first flight of the leased helicopter did

take place on 11th December 1994. The relevant question and answers to

this regard as under:

"Q. Is it correct the first flight took place on 11th December 1994 in regard to the lease helicopter?

A. Yes. The first air test flight took place on 11th December 1994 as recorded in page 82 in Volume-I."

19. The view taken by the majority Award cannot therefore be said to be

contrary to the evidence placed on record.

20. As regards deduction claimed by the Petitioner, one has to go by the

actual flying log (Ex.30). The learned Tribunal has rightly pointed out that

examination of invoices does show that as compared to the actual flying

time, the total flying hours that were billed for each month from May

1995 onwards till November 1996 were less. As rightly held by the

majority Award, the claim for any further reduction was, therefore,

misconceived.

21. As regards the actual date of return of the leased helicopter, the letter

dated 10th December 1996 written by the Petitioner to the RBI indicates

that even as on that date, it was not yet returned. Para (b) of the said letter

reads as under:

"b. With regard to the period of lease, it is reiterated that the helicopter was received on 7th September 1994 and the certificate of airworthiness was issued to the helicopter on 11th December 1994. As per clause 1.1 of the agreement No. 76-044/32299 dated 28th April 1994 the period of lease commenced from the date of C of A which is 11th December 1994. As such the lease agreement expires on 10th December 1996. Therefore, we request that GR waiver for re-export of this helicopter may please be issued urgently."

22. The fact remains that the leased helicopter was not returned till much

later. This is evident from the letter dated 11th September 1998 written by

the Petitioner to the RBI requesting for GR waiver for re-export of leased

helicopter. It is not disputed that it was only after an application filed by

the Respondent No.1 under Section 9 of the Act in this Court that the

leased helicopter was returned. Further, there was no clause in the

contract that actually provided for reduction of lease rentals for non-flying

hours, or even for damages for days of the non-flying. The majority

Award in regard to Claim No. 1 was based on the correct interpretation of

the clauses of the contract as well as the evidence on record and,

therefore, calls for no interference.

23. Claim No. 2 concerned the helicopter which was to be sold under the

contract dated 24th April 1994. While the Petitioner paid 95% of the price,

it had not paid the balance amount. The admission of the Petitioner in the

written submission was that balance amount, i.e., 5% was payable only

after adjustment of its claims, i.e., losses and LD suffered by it. Since this

was virtually an admission by the Petitioner, the decision to allow Claim

No.2, in the majority Award was justified. No interference is called for

with the Award in regard to Claim No. 2.

24. Claim No. 3 related to the second contract dated 10th February 1995

in relation to the four invoices under which the Respondent No.1 claimed

USD 3,96,017.56. The Tribunal referred to the letter of agreement dated

18th February 1997 as well as the evidence of Mr. Nikolai V. Dulin on

behalf of Respondent No. 1. The contention of Mr. Harish Malhotra,

learned Senior counsel for the Petitioner was that no details were

furnished by Respondent No. 1 nor any evidence led by it in support of

the claim. Whatever was the value of the goods, as shown in the invoices,

was duly paid by the Petitioner. The addendums to the agreement were of

no consequence as they were consequently treated to be cancelled.

25. Mr. Vineet Malhotra, learned counsel for Respondent No.1, on the

other hand pointed out that liability to pay the amount under Claim No.3

was based on invoices and was admitted by the Petitioner in the letter of

agreement dated 18th February 1997.

26. A perusal of the letter of agreement dated 18th February 1997 shows

that the Petitioner admitted its liability in respect of the four invoices

under the contract dated 10th February 1995 for USD 3,96,017.56. This

document has been signed by both the parties. Mr. Dulin, a witness of

Respondent No. 1, in his evidence spoke about this letter. Mr. Dulin,

specifically referred to the addendum and in para 25 of the affidavit by

way of evidence referred to the amount due under the contract dated 10th

February 1995. In para 26 it was specifically stated that the said amount

was also admitted by the Petitioner in the letter of agreement dated 18th

February 1997. The cross-examination of Mr. Dulin does not indicate that

any question was asked in relation to the LOA. In the circumstances, this

Court finds no error having been committed by the majority Award in

allowing Claim No. 3 of Respondent No. 1.

27. Claim No. 4 related to the balance amount towards the price for spare

parts. A reference was made in this regard again to the LOA dated 18th

February 1997. Therefore, this claim had also to be allowed to the extent

of USD 6,39,911.47.

28. Counter claim No. 1 of the Petitioner was premised on the contention

that the lease of the helicopter commenced only on 24th May 1995 and

was valid up to 23rd May 1997. The evidence on record, as has already

been discussed, showed that even according to the Petitioner, the

operation of the helicopter commenced on 12th December 1994 and ended

in November 1996. Therefore, the very basis of this claim stood refuted

by the evidence of the Petitioner itself. Rejection of Counter Claim No. 1

by majority award cannot therefore be faulted.

29. Counter claim No. 2 was for parking charges of the helicopter.

Despite the lease having expired in November 1996, the helicopter was

not returned by the Petitioner. Ultimately, the helicopter was released to

Respondent No. 1 by this Court's order. At the time of release, the

parking charges had been paid by Respondent No. 1 to the AAI.

Consequently, there is no merit and Counter claim No. 2 was rightly

rejected by the majority Award.

30. As regards Counter claim No. 3 for losses due to idling of helicopter,

the majority Award pointed out that no evidence was placed on record by

the Petitioner to establish any part of this counter claim. In the absence of

any evidence in support of such counter claim, it was rightly rejected by

the majority Award. Counter Claim Nos. 4 and 5 are also rejected.

31. As regards claims of Respondent No. 1, the Tribunal has awarded

only 6% interest per annum which is reasonable. The cost of arbitration

awarded can also not be unreasonable.

32. No ground has been made out for interference with the impugned

Award of the Tribunal. The petition is dismissed with costs of Rs.

20,000/- which will be paid by the Petitioner to Respondent No. 1 within

a period of four weeks.

S. MURALIDHAR, J.

MARCH 29, 2012 rk