Delhi High Court
Jammu & Kashmir State Power ... vs K.J.M.C. Global Market (India) ... on 9 May, 2016
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 3rd February, 2016
Judgment pronounced on: 9th May, 2016
+ O.M.P. 1159/2012, I.A. Nos.22242/2012 & 16035/2013
JAMMU & KASHMIR STATE POWER DEVELOPMENT
CORPORATION ..... Petitioner
Through Mr.Shashank Garg, Adv. with
Mr.Tariq Khan, Adv.
versus
K.J.M.C.GLOBAL MARKET (INDIA) LTD ..... Respondent
Through Mr.Bishwajit Bhattacharya, Sr.
Adv. with Mr.B.R.Mittal,
Mr.Aneesh Mittal &
Mr.Chandrachur Bhattacharya,
Advs.
CORAM:
HON'BLE MR.JUSTICE MANMOHAN SINGH
MANMOHAN SINGH, J.
1. The petitioner has challenged the Award dated 3rd July, 2012 by
filing of objection under Section 34 of the Arbitration & Conciliation Act,
1996 published by sole Arbitrator Mr. Justice Arun B.Saharya (Retired).
2. Brief facts as per pleadings and contentions of the parties are that on
21st May, 1999, after correspondence, discussions and negotiations, the
petitioner Jammu and Kashmir State Power Development Corporation
(JKSPDC) issued the Mandate Letter in favour of the respondent (KJMC),
which was accepted by the respondent with some Amendment, vide its
letter dated 22nd May, 1999 and 25th May 1999. Subsequently, on 28th
October, 1999, formal agreement (hereinafter collectively referred to as
the "Mandate") was approved by the J & K Government and was entered
into between the JKSPDC and respondent.
2.1 As per the said Mandate, the respondent was supposed to arrange
funds for the project from the financial institutions and banks upto
70% to 80% of the project cost of the 450 MW Baglihar Power
Project (hereinafter referred to as "the Project") and for that
purpose, the respondent was authorized by the petitioner to
represent the petitioner in dealing with the financial institutions and
the banks.
2.2 The cost of project was initially estimated to be Rs.3810 crores to
be financed by way of "equity" contribution of Rs.1143 crores to be
brought in by the sponsor J & K Government, Rupee Terms Loan of
Rs.1905 crores and Foreign Currency Loans of Rs.762 crores.
Howerver, the cost of project subsequently got reduced substantially
by about Rs.430 crores and brought down to Rs.3381.60 crores and
the quantum of term loan and foreign currency loan was also
consequently reduced to Rs.1690.80 crores and Foreign Currency
Loans of Rs.676.30 crores respectively. This was due to substantial
fall in interest rates leading to the reduction of interest cost of
project during construction period. Consequently, the aggregate
loan requirement came down to Rs.2367.10 crores, though the
learned Arbitrator has taken the aggregate loan requirement to be
Rs.3056 crores as per the IDBI Appraisal.
3. Thus, as per undisputed fact that the respondent was to arrange
finances within a period of nine months subject to prompt and timely
furnishing by the petitioner of information, documents and data required
by prospective lenders for processing and progress of the loan proposal,
entering into Power Purchase Agreements ("PPA") and taking of other
steps required to be taken by the petitioner.
4. The case of the respondent from the day one was since the
petitioner delayed furnishing of essential information, data and documents,
finalizing the PPA and taking steps for providing security for the loans as
approved by its Board of Directors and the State Government, the said
period was formally extended by the petitioner from time to time on 20th
March, 2001, 16th October, 2001, 11th May, 2002 and 22nd July, 2002 up to
31st December, 2002 as per terms of the mandate. The petitioner never
made any protest or grievance or pointed out any deficiency on part of the
respondent till the dispute arose between the parties. The respondent states
that as a matter of fact, the petitioner has withheld the material fact that it
had issued bonds of more than Rs.200 crores during the period 2000-03
with first charge on the Consolidated Fund of the State as security in
favour of Bond Subscribers (the ground taken by the petitioner before the
arbitral tribunal that the security by way of charge on the Consolidated
Fund stipulated by IDBI was un-accomplishable), but the same was
rejected by the arbitral tribunal. In the present objection, the petitioner has
taken the same ground who failed to disclose that in the estimated cost of
project submitted by it to IDBI it had 'included the cost of the dam which
was actually covered in second phase, as found out by a special committee
appointed for the purpose and after detailed deliberations the petitioner
accepted the said non-disclosure. The said process caused considerable
period of delay in appraisal of the loan proposal.
5. It is submitted by the respondent that as per the prevalent practice of
consortium financing of projects of this size, the respondent with full
knowledge and consent of the petitioner and top level functionaries of J &
K Government, approached IDBI for funding of the project by a
consortium of financial institutions and banks and taking the lead role. The
initial application for financial assistance was submitted to IDBI through
the Principal Secretary, Power Development Department of the J & K
Government on or about 11th June, 1999. The IDBI carried out appraisal
estimating the cost of project as Rs.3810 crores. The respondent through
the consortium mechanism got the initial funding arranged as confirmed
by IDBI at the Heads of Institutions Meeting (IIM) held on 18th
September, 2001 as under:
Sl. No. Name of Institution Rupee Term Loan Guarantee Aggregate
(Rs. Million) Assistance for amount of
ECBs including Assistance (Rs.
interest (Amount Milion)
equivalent rupees)
i) IDBI 2000 1000 3000
ii) ICICI 2000 1000 3000
iii) LIC 3000 - 3000
iv) GIC 1000 - 1000
v) PFC 6000 2000 8000
vi) SBI 1000 1000 2000
vii) J&K Bank 1400 - 1400
viii) Others 2650 6517 9167
Total 19050 (say 1905 11517 (say 1151 30567 (say 3056
crores) crores) crores)
It is stated by the respondent that for the 'others', names of Central
Bank of India, PNB, Bank of Baroda, Canara Bank and associates of State
Bank of India were indicated. The respondent arranged facility to the
extent of Rs.450 Crores from Canara Bank Rs.25 Crores, PNB
Rs.25Crores, Bank of Baroda Rs.25 Crores, Central Bank Rs 25 Crores
and HUDCO Rs.300 Crores, and additional Rs.50 Crores from SBI.
However, financial closure was prevented by the petitioner's defaults
primarily in taking steps towards compliance of security condition and
subsequent back tracking on security (though both the J&K Government
and the petitioner had initially themselves proposed and later
unequivocally accepted the security conditions stipulated by IDBI as the
leader of consortium) and also in keeping the respondent informed of
developments which had bearing on financing arrangement.
6. It is also submitted by the counsel for the respondent that on one
hand, the respondent was rendering services as above and on the other
hand, the petitioner and the State Government convened a meeting of the
institutions and banks on 13th January, 2003 and without informing the
respondent, conveyed to the lenders that the petitioner was no longer
willing to furnish the security and availing finance. No other reason
whatsoever was given, rather the petitioner subsequently pursued loan
proposals with a consortium of financial institutions and banks without the
knowledge of and even without involving the respondent. The same was
in fact not denied by the petitioner that five of the said institutions and
banks were the same as had been pursued by the respondent and
arrangements made despite of the fact that mandate admittedly provided
that the respondent would be entitled to his fees in the event the petitioner
pursued the same sources during or after the Mandate as had been pursued
by the respondent.
7. As the dispute arose between the parties, the respondent invoked the
arbitration clause of the Mandate and sole arbitrator who is the retired
Chief Justice of Punjab and Haryana High Court was appointed to
adjudicate the disputes between the parties.
8. After completing the pleadings and admission/denial of documents,
the matter was put up for framing of issues.
9. The following issues were framed by the Learned Arbitral Tribunal
on 3rd March, 2006:-
I.(a) Whether the Claimant supplied to the Respondent an indicative
and/or final list of essential project information/documents required
by it for arranging the loan facility? If not, what is its effect?
(b) If the answer to (a) above is in the affirmative, whether there was
any delay by the Respondent in providing essential
information/documents to the Claimant? If so, what is its effect?
II.(a) Whether the Claimant provided the Respondent with the final draft
of the Power Purchase Agreement?
(b) If the answer to (a) above is in the affirmative, whether there was
any delay by the Respondent in finalizing the Power Purchase
Agreement? If so, what is its effect?
III.(a) Whether the Claimant was entitled to extension of the period of the
mandate?
(b) Whether the mandate period for the Claimant expired on 31 st
December, 2002; and if so, to what effect?
IV. Whether the Respondent had accepted all the terms and conditions
stipulated by the Lending Institutions? If not, what is its effect?
(subsequently dropped)
V. Whether the respondent accepted the condition that it would create
security for the loan including, inter-alia, a first charge over the
consolidated fund of the State and mortgage over the project land?
If so, whether the Respondent, failed and neglected to take steps for
creation of such security? If so, what is its effect as between the
Claimant and the respondent?
VI. Whether the condition of creation of charge over the Consolidated
Fund of the State or any of the other conditions imposed by IDBI
and other prospective lenders were un-accomplishable? If so, what
is its effect?
VII.(a) What was the total debt facility to be arranged by the Claimant?
OPC
(b) What was the total debt facility the Claimant could arrange and get
sanctioned / approved from the financial institutions/banks?
VIII What was the project requirement schedule and whether Claimant
had arranged the required facility in accordance with such schedule?
If not, what is its effect? OPC / OPR
IX.(a)Whether a consortium of banks and financial institutions was
formed and the consortium allocated among themselves the total
debt of Rs. 2090 crores for the Respondent in their meeting held on
18.9.2001 or thereafter?
(b) If (a) above is answered in the affirmative, what were the terms and
conditions for granting the loan?
(c) Whether the terms and conditions stipulated by any member of the
Consortium were different from those stipulated by the Lender of
the Consortium? If so, what is its effect?
X Whether financial closure got delayed on account of default on the
part of the Respondent? If so, what is its effect?
XI Whether the Claimant's efforts brought about a stage where
financial closure would have followed had the Respondent taken the
necessary steps and complied with the pre-conditions of the
prospective lenders? If so, what is its effect as between the Claimant
and the Respondent?
XII Whether the interest rate proposed by IDBI was within the limits of
the Agreement between the Claimant and the Respondent? (was not
pressed)
XIII(a) Whether the interest rate proposed by IDBI was within the limits
of the Agreement between the Claimant and the Respondent?
(b) If the answer to (a) above is in the affirmative, did the respondent
decide not to avail the loan after financial closure was achieved with
the lending institutions? If so, what is its effect?
XIV Whether the Respondents, having accepted the terms and conditions
contained in IDBI's letter dated 1.7.2002, was estopped from taking
the stand that some term(s)/condition(s) thereof were un-
accomplishable?
XV Whether the Respondent, after having accepted the terms and
conditions imposed by IDBI, was under the obligation to inform the
Claimant that the Respondent had decided not to take steps to
comply with the same, but failed to inform the Claimant of such
decision? If so, what is its effect?
XVI Whether the Respondent directly pursued the financial offer which
the Claimant was pursuing? If so, what is its effect?
XVII Whether the Claimant is entitled to payment of interest? if so, on
what amount, at what rate, and for which period?
XVIII(a) Whether the Claimant did not fulfill its contractual obligation of
arranging finances? If so, whether it did so willfully?
(b) If the answer to (a) above is in the affirmative, whether the
respondent suffered loss or damage on account of such breach by
the Claimant?
(c) If the answer to (b) above is in the affirmative, whether the
respondent is entitled to payment of compensation? If so, what
amount?
XIX. Whether the Respondent is entitled to refund of Rs. 1 Crore advance
payment made to the Claimant under the Agreement dated 28.10.99
and any supplementary Agreement thereto?
XX Whether the Respondent is entitled to reimbursement from the
Claimant of the sum of Rs.1,43,50,000/- paid to the lending banks
towards upfront/application/processing fee under the Agreement
dated 28.10.99 and any supplementary Agreement thereto?
XXI Whether the Respondent is entitled to payment of interest? If, so, on
what amount, at what rate and for which period?
XXII Whether the Claimant (KJMC) or the Respondent (JKSPDC) is
entitled to cost of Arbitration? If so, what amount?
10. The respondent who was the claimant before the Arbitral Tribunal
had filed the affidavit of Mr. I.C. Jain on 1st April, 2006 as CW-1 by way
of evidence. On 24th November, 2006 the petitioner cross examined CW-
1 and it was continued on 25th November, 2006 and concluded on 26th
November, 2006. Mr. Inderpal S. Kalra who had been summoned to
appear as a witness was examined as CW-2. His cross-examination was
recorded on 28th February, 2007.
11. On 30th April, 2007, respondent submitted the affidavit by way of
evidence of RW-1 Mr. M.H. Teli. His Cross-examination was recorded on
4th May, 2007, 5th May, 2007, 20th July, 2007; and his cross-examination
was concluded on 21st July, 2007. On 21st July, 2007, respondent's counsel
made a statement that he "does not wish to produce any other witness and
his case is closed". Thus, trial of the case was concluded.
The learned sole Arbitrator discussed the terms and conditions of
the contract in detail as appeared from the award. Even all relevant clauses
of the contract were reproduced in the award.
The respondent submitted written response in respect of the first six
issues on 19th May, 2010, who also filed the consolidated written
submissions in respect of Issue No. VII to Issue No.XXII on 15th June,
2010 and on Issue No.VII to Issue No.XXII on 17th July, 2010. After
discussion of pleadings, documents and evidence adduced by both parties
published the award covering 273 pages in favour of the respondent. The
petitioner also filed the counterclaim before the Arbitral Tribunal and the
same was dismissed.
12. The arbitration proceedings commenced on 7th December, 2004 and
were concluded on 3rd July, 2012 when Award dated 3rd July, 2012 was
made granting the following reliefs to the respondent:-
A. Cash compensation (Para X.2 of the Agreement) and pre-
Award interest in terms of determination under Issue Nos. VII,
VIII and IX read with Issue No. XIII and Issue No.XVII
(a) Principal sum : Rs.68,12,500/-
(b) Pendente-lite interest : Rs.70,16,875/-
Simple interest @ 12% per annum for the
period from 01.12.2003 up to 30.06.2012 ( 8
years 7 months)
(c) Total (a+b) Rs.1,38,29,375/-
B. Due fees (para X.3 of the Agreement) and pre-Award interest in
terms of the Award under Issue No.XVI and Issue No.XVII
(a) Principal sum : Rs.2,02,50,000/-
(b) Pendente-lite interest : Rs.1,80,22,500/-
Simple interest @ 12% per annum for the
period from 01.02.2005 up to 30.06.2012 ( 7
years 5 months)
(c) Total (a+b) Rs.3,82,72,500/-
The award of A and B above will operate in the alternative.
C. Costs in terms of the Award under issue No. XXII: Total
Rs.62,65,279.00.
D. Future Interest: The total sum of money to be paid under A or
B, whichever is higher in terms of value of money, plus costs,
shall carry simple interest at the rate of 12% per annum from
the date of the Award to the date of realization.
E. If the Claimant has to incur any other or further expenses to
take up the Award, the respondent shall reimburse it to the
claimant; and the same shall be deemed to be costs under the
Award.
13. Initially, both parties had filed the objections under Section 34 of
the Act. The respondent herein filed the objections on limited point being
O.M.P. No.1088 of 2012 for setting aside part of the reliefs in the award
stating "the Award of 'A' and 'B' would operate in the alternative" but the
respondent later on chose to withdraw its objections.
14. The petitioner's main challenge to the Award dated 3rd July, 2012
was on the basis of grounds for the following reasons:
a) As per Issue I, despite of the finding of the Arbitrator that the
respondent/claimant failed to provide the Indicative and Finalised
list of materials required as per Clause V.l, its mandate was still
extended.
b) As per Issue II, despite the respondent/claimant furnishing
incomplete Power Purchase Agreements under Clause V.2, the
Arbitrator holds that its mandate still extended.
c) As per Issue IV and V, the petitioners arguments as to the
conditions for financing purportedly arranged by the
respondent/claimant were unaccomplishable due to the following
reasons:
i. The mortgages as desired by the lenders required
amendments by to the Transfer of Property Act by the
State Legislature
ii. Similarly for the creation of a charge over the
Consolidated Fund of the State required the passage of an
appropriations bill in the State Legislature.
d) As per Issue VI, the Ld. Arbitrator erroneously held that the
petitioner and the State Government were one and the same entity
and hence, could compel the passage of legislation to ensure the
conditions for securing the purported financing.
e) As to Issue Nos. VII, VIII, IX, it is submitted that:
i. Ld. Arbitrator erred in holding that the loan was
sanctioned on 18.09.2001 as all correspondence was only
indicative and no financial closure had been achieved.
ii. Financial closure was a pre-requisite for the Award of any
money to the claimant as cash compensation and the
Arbitrator proceeds to award the Award beyond the terms
of the Agreement.
iii. Despite admission by CW-1, that offer of loan only if
LOI/Sanction letter issued, despite claim awarded on
18.09.2001 minutes.
f) As to Issue No. III on the extension of mandate:
i. The Mandate was extended on three occasions, lastly on
22nd February, 2003 which came after expiry of third
extension on 31st December, 2002. However, the
respondent/claimant failed to secure financing despite it.
ii. There were clear delays attributable to the
respondent/claimant as was held in Issue No. 1. Even
despite this the Ld. Arbitrator extended the mandate of
the respondent/claimant indefinitely.
iii. The extension of mandate under Clause V. 1 could only
be claimed after a formal notice by the
respondent/claimant which has not even determined in the
impugned Award.
iv. Since the respondent failed to secure debt despite three
extensions compensation under Clauses X.l and X.2 is
inapplicable.
g) As to Issue Nos. X, XI, XII the Ld. Arbitrator has erred in holding
that the respondent/claimant is entitled to Cash Compensation for
arranging Rs. 2690 Crores for financing:
i. This money was only an indicative offer by a IDBI led
consortium and based on the minutes of 18th September,
2001 which were not final. Even the total amount of
funding was not mentioned.
ii. At best this was a negotiation which failed due to the
onerous conditions which were impossible to comply
with.
iii. The Ld. Arbitration failed to appreciate that the Sanction
Process and the actual sanction of loan are different.
h) As to Issue No. XVI it is submitted that the subsequent loan from,
Power finance corporation loan dated 19th January, 2005 was
distinct from the loan proposals secured by the claimant and hence
it was not entitled to any due fees under Clause V.3.
15. The respondent in its reply has raised the following main points by
stating that the objections are untenable; no interference is required under
the scope of Section 34 of the Act; the award is well reasoned; the learned
Arbitrator by taking the plausible view stroke the balance between the
parties under the situation and facts of the present case:-
a. The respondent submits that the petitioner has suppressed the
following basic facts which go to the core of the issues in the
present petition:
(i) During the course of the Mandate and thereafter till the
time respondent filed the petition for reference of the dispute to
the Arbitrator, there was not a single communication by the
petitioner even obliquely referring to any delay or deficiency on
the part of the respondent; instead, there are numerous
letters/reminders from the respondent to the petitioner referring
to delay on part of the petitioner;
(ii) There were persistent delays on the part of the petitioner
in furnishing necessary information, data and documents
required by the lenders both at the initial and further stages of
arranging of the finance;
(iii) The financial institutions observed that the cost of the
project envisaged by the petitioner was much higher as
compared to other similar projects in the nearby areas. This
resulted in deliberations, queries and correspondence to and fro
between and amongst the petitioner, respondent and the
financial institutions causing corresponding delay;
(iv) The petitioner failed and neglected to take steps towards
complying with the conditions including the condition for
creation of security stipulated by the consortium of lenders led
by IDBI which had been unconditionally accepted by the
petitioner and in fact in the first instance, was offered by the
petitioner and the J & K Government themselves as the
proposed security package for the Loans.
(v) The J&K Government was included in the list of defaulters
and continued to be shown in the list of defaulters just before
the time the letter of intent was issued by IDBI on 1 st July, 2002
because it had defaulted on financial guarantees given by it for
the loans granted by the institutions and banks in the past to
certain J&K State undertakings thereby raising issues about its
credibility and capability for honouring its fresh guarantee
obligations;
(vi) The petitioner concealed from the respondent and the
lenders the fact that the cost of the project also included
substantial cost of dam covered by Phase II and not under Phase
I of the project for which the petitioner applied for financial
assistance, as discovered in deliberations of the Special
Expert Committee constituted by IDBI;
(vii) The petitioner inordinately delayed acquiring of the
required lands for the project and failed to get the J&K
Transfer of Property Act amended to permit creation of
mortgage in view of the restrictions imposed on creation of
such mortgage in favour of persons or entities residing or
based outside the State.
(viii) J&K Government being sponsor of the project, had
itself offered to support its guarantee obligation for the loan
facilities by creating a charge on the State's Consolidated
Fund as the final security package but later on back tracked,
dithered and developed cold feet due to impending elections
in the State and political expediency;
(ix) The petitioner unduly delayed finalizing and entering into
Power Purchase arrangements with State Electricity Boards
and eventually executed Power Purchase Agreement only
with J & K Power Development Department of the
Government of J&K and that too only on 13 th December,
2000;
(x) The petitioner's contention that the conditions stipulated
by given financial institutions and banks were at variance
with each other is not correct as most terms, though some
were differently worded, were in substance the same and if at
all without admitting, there was any difference in the terms,
that would have been got finally harmonized while finalizing
the loan documentation in line with the terms and conditions
stipulated by IDBI as the Lead institution as per RBI
guidelines and established consortium practice of lenders.
(xi) The contention of the petitioner that giving first charge
on the State's Consolidated Fund was unaccomplishable is
incorrect and misleading. State Government guarantees are
known and generally accepted as part of security for
Government or Government Undertaking (PSU) projects with
direct or indirect implication of charge over and/or resorting
to the Consolidated Fund. The petitioner itself had created
such a charge in respect of its bond issue for working capital
arranged by this respondent and is barred from taking this
ground. The petitioner had fully satisfied itself by obtaining
legal opinions of experts including of its own Advocate
General as also a former Judge of the Bombay High Court as
to the feasibility and manner of creation of charge over
Consolidated Fund of the State. At no time prior to the
invocation of arbitration clause by the respondent did the
respondent, raise any issue or take any objection to the said
security condition.
(xii) The petitioner is not at all justified in saying that no
security for loans was contemplated under the mandate given
to the respondent. The petitioner was fully aware of the
institutional/normal banking practices of insisting on security
for any loan. The said stipulation was necessarily implied and
inherent and indeed, formed part of pre- commitment
conditions. The petitioner and important J&K Government
representatives were all along party to discussions and
deliberations with the financial institutions and banks and at
no point of time was it contemplated or could be expected by
anyone that loans would be provided without any security or
charge on assets being first in place. In case, the security was
not to be provided, the petitioner at the initial stage itself
would not have agreed to provide security. On the contrary, it
had specifically passed the Board Resolution dated 29 th July,
2002, accepting the terms and conditions including the
condition as to security. The petitioner was fully aware that
the furnishing of security was not only implied but was an
obvious requirement under the Mandate."
16. It is pertinent to mention here that the impugned award passed by
the learned Sole Arbitrator is detailed one. The learned Arbitrator has dealt
with each and every aspect of the matter who has also assigned his
reasons. All the grounds taken in the present objections by the petitioner
have been discussed and detailed findings have arrived. Thus, it is not
necessary to repeat the evidence and arguments advanced by the parties
before the Arbitral Tribunal. However, the discussion of evidence and the
conclusion arrived at by the Arbitrator in para 32 to 73 are reproduced
here as under :
"32. The next question for consideration is whether the
financing offers pursued by JKSPDC were the offers being
pursued by KJMC or were different from those that were being
pursued by KJMC for financing the project.
33. Power Finance Corporation, HUDCO, Central Bank of
India, Canara Bank and Jammu and Kashmir Bank were included
in the thirteen institutions banks who were participating in the
consortium arrangement made by KJMC. They were five out of
nine lenders named in the Common Loan Agreement. Power
Finance Corporation was the largest lender in both the
arrangements earlier when IDBI was the Lead Institution and
later when PFC played the lead role in the consortium
arrangement. The break-up of the commitment made by these
five common lenders in the earlier arrangement and under the
common loan agreement is given below :
Sl. No. Particulars Commitment in earlier Commitment in later
arrangement discussed arrangement (Common
under Issue No.VII (supra) Loan Agreement) (Rupees
(Rupees in crores) in crores)
India
Total 1290 1210
34. In the Common Loan Agreement, the share of loan
sanctioned by PFC was lowered from 800 crors to 600 crores;
that of HUDCO remained the same at 300 crores; but, the
commitment sanctioned by the other three of the erstwhile
members was enhanced in the case of J&K Bank from 140 crores
to 200 crores, CBI from 25 crores to 37 crores and Canara Bank
from 25 crores to 73 crores. The aggregate amount of the loan
arranged by five of the common lenders comes to Rs.1210
crores.
35. In the Common Loan Agreement, there is nothing
pointed out to show that Power Finance Corporation or any of the
other lenders had carried out any independent appraisal of the
proposal to finance the project. The Respondent has net adduced
any evidence at all to show that Power Finance Corporation or
any of the other lenders had carried out independent appraisal of
the proposal to finance the project. RW-1 has said nothing about
it in his affidavit by way of evidence. He has been cross-
examined extensively on various aspects of appraisal and he has
failed to show that Power Finance Corporation or any other
lender had carried out appraisal for financing the project under
the Common Loan Agreement.
36. RW-I Mr.M.H.Teli on the other hand has admitted that
Tata Consulting Engineers was engaged by KJMC and the
detailed project report which had earlier been prepared for the
project was got evaluated by Tata Consulting Services and Tata
Engineering Services; and that JKSPDC was given a copy of the
report on the technical and financial aspects of the project. He
also admitted as correct that CARE prepared credit rating reports
for the project. He was specifically asked about detailed appraisal
reports prepared by IDBI and SBI; and. copies of the same
supplied JKSPDC. He avoided giving direct answers on the
pretext that he did not remember whether documents were
officially supplied by IDBI or some documents were sent by
KJMC to JKSPDC.
37. He was specifically asked whether the entire process of
evaluation was redone. A suggestion was given that the
evaluations by Tata Consulting Services and Tata Engineering
Services credit rating reports and appraisal notes were utilized to
carry the process of financing forward through the PFC led
consortium. He tried to wriggle out of these pinpointed questions
and suggestions by saying that the Common loan Agreement was
a separate arrangement "not based on the services carried out by
KJMC and "the documents referred contained information
provided by the JKSPDC and the State Government. The
information which was sought by PFC for the project appraisal
was furnished by JKSPDC and the State Government".
38. It is apparent from the material on record, some of which
was specifically put to RW-I Mr. Teli in his cross-examination,
that JKSPDC and the State Government furnished to PFC
information that was gathered by KJMC and that the same was
utilised to carry the process of financing of the project under the
Common Loan Agreement.
39. Security of the State Government Guarantee and
Mortgage of land involving amendment of the State Transfer of
Property Act; and comparison of the same stipulated by IDBI
with that under the Common Loan Agreement are pertinent.
40. The security conditions stipulated by the IDBI are the
subject matter of discussion in detail under Issue No.V (supra).
Suffice it to say, IDBI's conditions were laid out in far more
elaborate and explicit terms and incorporated the entire
mechanism also in the Security Package; whereas the Common
Loan Agreement stipulates similar conditions in subtle and
nebulous terms using different expressions in a different pattern
and structure in more concise formal as discussed below.
41. In view of the ambiguous position taken by the parties at
the time of oral hearing and in their written submissions on this
issue parties were asked to clarify their position on this aspect of
the case in the following terms :
"If the earlier financial model was different from the latter,
what were the salient features of difference in the two
financial models, especially regarding the Security Package
and the mechanism for mortgage of the project land
involving amendment of the Transfer of Property Act and
the mechanism for furnishing State Government Guarantee
involving a charge on the Consolidated Fund of the
State ....."
42. The respondent's response is reproduced below:
"The main differences between two models are explained by
the Respondent in its written submission filed on
03.09.2009 (56D). In the IDBI lead offer the conditions
were that State Government should guarantee charge on the
consolidated fund of the state and also allow lien on the
central plan allocation to the State of J & K. These
conditions were absent in the common loan agreement.
Regarding the security package and mechanism for
mortgage of the project land involving amendment of the
Transfer of Property Act, IDBI lead institutions insisted for
Amendment of Transfer of Property Act, where as in the
common loan agreement, it was subject to existing Act, and
no amendment of T.P Act was insisted.
It is submitted that in the common loan agreement no such
security was demanded or provided for the loan,"
43. Respondent has misrepresented the contents and the tenor
of the Security Package Item (h) contained in IDBI's Revised
LOI dated 01.07.2002 Exh R-18. The Security is the State
Government Guarantee. The other stipulations are a part of the
mechanism for operation of the State Government Guarantee,
which involve a charge on the Consolidated Fund of the State
and also a Tripartite Agreement with the lenders and J&K Bank
to provide lien on all the amounts of the State Government lying
with Jammu and Kashmir Bank Ltd. including amount received-
as Central Plan Allocation, as discussed in detail under Issue
No.V (supra). This is different from the Respondent's assertion
that State Government should guarantee charge on the
consolidated fund of the state and also allow lien on the central
plan allocation to the State of J & K".
44. Common Loan Agreement Article III Para 3.1 stipulates
"Security for Loans" including Clause (e) State Government
Guarantee, in the following terms:
"(e) An unconditional and irrevocable guarantee to be
furnished by the Government or State of Jammu and
Kashmir in the form prescribed by the Lenders."
45. The mechanism for furnishing and operation of the State
Government Guarantee is not given in the Common Loan
Agreement.
46. The series of discussions with the lenders in the
consortium arrangement made by the Claimant explain the
mechanism for furnishing and operation of the State Government
Guarantee involving a charge on the Consolidated Fund of the
State for the enforcement of the State Government Guarantee.
The manner in which such security had to be furnished was
explained in the opinion of Mr. Justice (Retired) Dhanuka Exh
CW 1/19, and the same is also recorded as the step by step
process envisaged for enforcement of such a guarantee in various
documents on record, which have also been discussed in greater
detail under Issue No.V (supra).
47. Butterworth's "Law Relating to Infrastructure Project"
explains the operation and mechanism of "State Guarantees". It is
stated: "a guarantee given by the state can be effectively realised
only by drawing upon the consolidated fund of a state ..... In
order to be secure while to obtaining proceeds from the
encashment of the state guarantee, a provision will have to be
made for its contingency each year in the concerned state's
Appropriation Act. In the absence of such a contingency being
specified, upon the enforcement of the state guarantee by the IPP,
no proceeds can be given unless is from the Contingency Fund of
the state or a law is passed by the legislature of the concerned
state authorising the money to be paid under the guarantee from
the Consolidated Fund of the state .... ".
48. IDBI's Security Package Item (h) required the State
Government Guarantee for due repayment of the RTL etc.
Provision was made in express terms for a charge on the
Consolidated Fund of the State by passing necessary legislative
bill to this effect under Article 79 (3) (f) of the Constitution of
Jammu & Kashmir and also for passing of the
Appropriation/Money Bill.
49. In the Common Loan Agreement, Security of
Government Guarantee was required. Provision for the executive
and legislative acts necessary for the creation, operation and the
mechanism for enforcement or the State Government Guarantee
were not made in express terms; but all such executive and
legislative acts and measures were inherent in the requirement of
the State Government Guarantee and its enforcement by a law
passed by the legislature authorising the money to be paid from
the Consolidated Fund of the State in accordance with the
relevant provisions made under the Constitution of Jammu &
Kashmir.
50. The absence of express stipulation of such a mechanism
in the Common Loan Agreement would not justify the comment:
"These conditions were absent in the common loan agreement".
51. In respect of the security of mortgage involving
amendment of the State Transfer of Property Act also the
Respondent has unjustifiably made the comment that such a
condition is absent and that no amendment of the Transfer of
Property Act was required. The correct position is borne out on a
proper analysis and reading of the relevant stipulations made in
the Common Loan Agreement.
52. The Common Loan Agreement Article III Para 3.1
stipulates "SECURITY FOR LOANS" in Part (A), Part (B) and
Pan (C). Mortgage, subject to the State Transfer of Property Act,
of immovable properties is regulated by the stipulations made in
Part (A) (a) and also Part (B). For the present discussion, it is
also necessary to read Article V Para 5.1 (ii) of the
"CONDITIONS PRECEDENT TO EFFECTIVENESS" and Para
5.2 "CONDITIONS PRECEDENT TO INITIAL
DISBURSEMENT". Relevant portions of the stipulations made
in Article III and Article V have been extracted and the same are
reproduced below:
Article III: Security
3.1 SECURITY FOR LOANS:
(A) The Loans together with all interest..... shall be secured
by:
"(a) a first mortgage and charge in favour of the Lenders,
subject to the Transfer of Property Act of the State
Government. of all the Borrower's immovable properties
pertaining to the Project both present and future."
xxx xxx xxx
(b) The Borrower shall make out a good and marketable
title to the Project's properties to the satisfaction of the
Lenders and comply with all such formalities as may be
necessary or required for the said purpose.
xxx xxx xxx
ARTICLE V: EFFECTIVENESS OF THE AGREEMENT
AND CONDITIONS PRECEDENT
5.1 CONDITIONS PRECEDENT TO EFFECTIVENESS
"The obligations of the Lenders' to make available the loan
under this Agreement shall be effective upon the Borrower
complied with the conditions set forth below in a manner
satisfactory to the Lenders:"
xxx xxx xxx
"(ii) The Borrower has provided the evidence that all the
amendments; as suggested by the Lenders/Lenders' Counsel
in J&K Transfer of Property Act other relevant Acts/Laws
of J&K and notifications affecting the right of the Lenders
as mortgages, has been incorporated in such Acts laws and
notifications by the State Government ....."
xxx xxx xxx
CONDITIONS PRECEDENT TO INITIAL
DISBURSEMENT
The obligation of the Lenders to make any disbursement
shall be subject to the Borrower establishing that the
conditions set forth below have been fulfilled in a manner
satisfactory to the Lenders except those, the fulfilment of
which has been waived or deferred by the Lenders.
xxx xxx xxx
b) Project Site
The Borrower has acquired and obtained possession of the
required land as may be necessary for the Project on terms
satisfactory to the Lenders.
53. Respondent has suppressed the above-mentioned
stipulations made in the Common Loan Agreement and has
picked up in isolation only Article III Part (A) Clause (a).
Respondent has also twisted Out of proper context the expression
"subject to the Transfer of Property Act of the State Government"
to develop the proposition and advance the misleading
interpretation: "it was subject to existing Act, and no amendment
of T.P. Act was insisted".
54. The above-mentioned stipulations in Article III Part (A)
read in conjunction with Part (B) stipulated that the Borrower
shall make out a good and marketable title to the Project's'
properties and comply with all such formalities as may be
necessary or required for the said purpose, which allude to the
inherent requirement of acquisition. mutation and transfer of the
title of land etc., without expressly providing for compliance with
the mechanism, by using the nebulous expression "formalities",
necessary and required by law for the said purpose of furnishing
security by mortgage of "immovable properties pertaining to the
Project both present and future".
55. Common Loan Agreement Article V Para 5.1 uses the
nomenclature "CONDITIONS PRECEDENT TO'
EFFECTIVENESS" of the Agreement, which is similar to the
expression "Pre-commitment Conditions"; and Para 5.2 uses the
nomenclature "CONDITIONS PRECEDENT TO INITIAL
DISBURSEMENT", which is similar to the other expression
"Pre-disbursement Conditions" used in the Agreement Exh C-3.
56. Article V Para 5.1 stipulated that the obligations of the
lenders to make available the loan shall be effective upon the
Borrower complying with the conditions set forth in Clause (ii)
requiring "the evidence that all the amendments ....in J&K
Transfer of Property Act .... affecting the right of the Lenders as
mortgages" had been "incorporated in such Acts/laws and
notifications by the State Government". This was a condition
precedent that required in clear terms amendment of the Transfer
of Property Act for effectiveness of the agreement. It is just the
opposite or the proposition that the mechanism for mortgage
under the Common Loan Agreement was subject to existing Act,
and no amendment of T.P. Act was insisted".
57. Acquisition mutation, transfer of title and possession of
the land and amendment of the Transfer of Property ACI were
inherent conditions, without laying down in express terms the
mechanism required by the law for mortgage of all the
immovable properties pertaining to the Project Stipulated as
secularity conditions under the Common Loan Agreement.
58. In respect of security by mortgage of all the immovable
properties pertaining to the project involving amendment of the
Transfer of Property Act, it is misleading and wrong to say:
"These conditions were absent in the common loan agreement"
or "that in the common loan agreement no such security was
demanded or provided for the loan".
59. On this basis, it cannot be said that the financing offers
directly pursued or revived by JKSPDC were different and
distinct from those that were being pursued from the sources
finalised by KJMC.
60. Liberalisation of the policy for financing infrastructure
projects in the power sector is evident from series of circulars
and guidelines issued by the Reserve Bank of India (RBI) to
banks for participation of banks together with financial
institutions for financing such projects, which are the subject
matter of discussion under various issues including Issue No.VI
and Issue No.XIV (supra).
61. CW-2 Mr. Inderpal S. Kalra has stated in his
unchallenged deposition mentioned above inter-alia, that various
banks also besides financial institutions were forthcoming to lend
to power projects in pursuance of a substantial change in the
power sector scenario. He has explained, more particularly, that
enactment of the Electricity Act, 2003 had opened up many new
opportunities whereby power could be transmitted by any State
to other State or from one generator to other distributing
company. The Power Grid Corporation was taking up large
projects. It made it easier for transfer of power to other States.
This is the reason "why all these factors have actually helped in
more investment coming into the power sector which speaks of
the fact that the risk profiling of the power projects have also
undergone change ..... ".
62. RW-I Mr. M.H. Teli was specifically asked in his cross-
examination about the substantial reform in the power sector.
Questions and a suggestion put to him and his answers depict his
evasive response on this aspect of the case also.
63. CW-2 has deposed about the Minimum Term Lending
Rate (MTLR) also. He has stated: "In 1999 it was 12.5% then it
came down to 10.25% around 2004 and has gradually increased
to 12% presently". The gradual increase of MTLR to 12%
"presently" is relatable to the date when his deposition was
recorded i.e. 10.02.2007. This aspect also has been left without
any challenge in his cross-examination. This is proof of the fact
that interest rate also had come down during the period under
discussion.
64. In any event, difference in the rate of interest for
repayment of the loan would not in any way disprove the facts
which have been proved by preponderance of the evidence
discussed above that the Respondent had further pursued or
revived the financing offers that were being pursued by KJMC
from the sources finalised by KJMC .
65. There is no substance in the argument developed by Mr.
Thomas that KJMC is not entitled to any compensation under
Para X.3 of the Agreement as the period of mandate of the
Claimant had expired on 31.12.2002 and the Common Loan
Agreement was signed almost two years after expiry of the
contract with the Claimant.
66. JKSPDC had taken steps for getting financial support
from the Central Government. KJMC had assisted JKSPDC in
meetings with the concerned officers of the State Government
and the Central Government and in making a presentation to the
Central Government in May 2003. After obtaining additional
Central Assistance, JKSPDC further pursued or revived the
financing offers that were being pursued from the sources
finalised by KJMC, without keeping KJMC in close confidence,
JKSPDC executed the Common Loan Agreement dated
19.01.2005.
67. Para X.3 stipulates operation "any time during or after
this mandate". It would apply to the envisaged contingency
arising in a situation even after expiry of the period of the
mandate. Further it stipulates "In such a case, all obligations of
JKSPDC with corresponding obligations of JKSPDC under the
terms and conditions of this Agreement shall be deemed to have
come in force". Therefore, the argument developed to exclude
application of the provisions made in Para X of the Agreement
because the Common Loan Agreement was signed almost two
years after expiry of the extended period of the mandate,
described as "end of the contract", cannot be accepted.
68. There is no substance in the plea raised on behalf of the
Respondent that no case has been made out by the Claimant for
grant of compensation as no notice of breach was given under
Para X.I and Para X.2; and, consequentially, the Claimant is not
entitled to payment of fees under Para X.3 of the Agreement.
69. JKSPDC had failed to furnish information to KJMC
about security; it had also failed to extend the period of the
mandate; and thereby committed breach of its obligations and
responsibilities discussed under Issue No.III and Issue No.V
(supra). Subsequent to such breach having occurred after the
submission of the complete application to the lead institution,
namely IDBI, the contingency had arisen which is the subject
matter of the present discussion and the same is actionable under
Para X.3 of the Agreement.
70. The requirement of notice of the breach under Para X.I
and Para X.2, if at all, would operate if the contingency
envisaged under Para X.3 also had arisen at any time during the
period of mandate. That requirement is not applicable in the
present situation where the contingency has arisen after expiry of
the period of mandate.
71. In terms of Para X.3 of the Agreement Exh C-3, on
successful completion of the financing arrangement under the
Common Loan Agreement, KJMC is entitled to its due fees less
the fees already paid by JKSPDC being a maximum of 0.25% of
the amount arranged. (Exh C-20 Supplemental Agreement had
reduced the quantum of fees from the maximum of 2.5% to
0.25% with a cap of Rs.700 lacs).
72. On conservational view, it will be appropriate to calculate
the quantum of "due fees" on the basis of the aggregate amount
of Rs.121 0 crores arranged by five of the common sources under
the Common Loan Agreement.
73. Claimant is entitled to due fees amount of
Rs.3,02,50,000/- (0.25% of the amount of Rs.1210 crorcs); less
Rs.1,00,00,000/- already received by it. Claimant will be paid
"due fees" balance amount of Rs.2,02,50,000/- (Rupees Two
Crores Two Lacs Fifty Thousand Only)."
17. Similarly, on issue of interest in paras 1 to 12, the following
conclusion is arrived. The same read as under:-
"Issue No.XVII: Interest
1. Grant of interest is regulated by Section 31 Sub-section 7
of the Arbitration and Conciliation Act, 1996. It is reproduced
below:
Section 31 (7):
"(a) Unless otherwise agreed by the panics where and in so far as
an arbitral award is for the payment of money the arbitral tribunal
may include in the sum for which the award is made interest at
such rate as it deems reasonable, on the whole or any part of the
money, for the whole or any part of the period between the date
on which the cause of action arose and the date on which the
award is made.
(b) A sum directed to be paid by an arbitral award shall, unless
the award otherwise directs, .carry interest at the rate of eighteen
per centum per annum from the date of the award to the date of
payment."
2. Claimant has prayed for grant of interest at the rate of
fifteen per centum per annum; whereas Respondent has claimed
in its counter-claim interest at the rate of eighteen per centum per
annum.
3. The agreement is silent as to payment of interest.
Claimant made a demand for release of fees by notice dated
14.11.2003 Exh C-47.
4. Claimant has been found entitled to payment, less the fee
amount of Rs.1 crore already paid by the respondent, balance
amount of cash compensation Rs.68,12,500/- (Rupees Sixty
Eight Lacs Twelve Thousand and Five Hundred Only) under
Issue No XIII (c); and for the payment of balance amount of due
fees Rs.2,02,50.0001- (Rupees Two Crores Two Lacs Fifty
Thousand Only) under Issue No. XVI (supra).
5. The tribunal considers it appropriate, in the facts and
circumstances or the case, to grant and include in the aforesaid
sums of money interest at the rate and for the period given below.
6. CW-2 Mr. Inderpal S. Kalra has stated in his
unchallenged deposition about the Minimum Term Lending Rate
(MTLR) in 1999 and a part of the pendente lite period from 2004
to 10.02.2007 when his statement was recorded: "In 1999 it was
12.5% then it came down to 10.25% around 2004 and has
gradually increased to 12% presently".
7. The Common Loan Agreement Para 2.3 (i) (a) stipulated
that the borrower shall pay interest to each of the lenders the
principal amount of the Loan disbursement indicated in Schedule
IV. Schedule IV stipulated applicable rate of interest on the
outstanding amount payable to power finance corporation and
HUDCO as per their policy notified from time to time
"presently" 8.75% per annum. J&K Bank 9.75% per annum
(fixed) Central Bank of India 10.5% per annum (fixed), Canara
Bank 10.5% per annum (floating). Provision was also made in
Para 2.3 (ii) for payment of penal interest in case of default in
payment of interest and principal to Power Finance Corporation,
Central Bank of India, Canara Bank, Jammu and Kashmir Bank
at rate of 2.0 % per annum and to HUDCO at the rate of 3.0% per
annual over and above the applicable rate indicated in Schedule
IV. These provisions indicate fluctuating rate of interest from
time to time and stipulation of interest by the above-mentioned
lenders at variable rate in a broadband from 8.75% to 10.5%,
with penal interest in case of default in payment also at the rate
of 2 or 3% over and above the applicable rate in January 2005.
8. Mr. Kalra's deposition in respect of a part of the pendente
lite period around 2004 is corroborated by the stipulation made
for payment of interest in the Common Loan Agreement dated
19.01.2005. There is nothing pointed out to discount his
deposition in respect of the later pan of the pendente lite period
around 2007.
9. In view of the nature of the transaction, the rate of
interest claimed by the rival parties and, the evidence showing
variable rate of interest from time to time, award of simple
interest at the uniform rate of twelve per centum per annum
appears reasonable. The same rate of interest would be applicable
for the pre-award period and the post-award period.
10. In respect of the aforesaid sum of money for payment of
compensation under Issue No.XIII(c), simple interest shall be
paid for the period from 01.12.2003, that being the first day of
the month after the date of the demand notice Exh C-47, up to
30.06.2012.
11. In respect of the "aforesaid Sum of money payable under
Issue No. XVI, the cause of action for payment of due fees arose
on 19.01.2005 "on successful completion of the financing
arrangement under the Common Loan Agreement". Simple
interest shall be paid for the period from 01.02.2005, that being
the first day of the month after execution or the Common Loan
Agreement, up to 30.06.2012.
12. Further, the total sum of money directed to be paid by the
award shall carry future interest at the uniform rate of simple
interest of twelve per centum per annum from the date of the
award to the date of payment by the Respondent to the Claimant,
under Section 31 of the Arbitration and Conciliation Act, 1996."
18. While rejecting the counter-claim of the petitioner, the learned
Arbitral Tribunal in paras 31 to 45 has arrived at the following
conclusions. The same are read as under:-
"31. Refundable advance of Rs.100.00 lacs was paid by
JKSPDC to KJMC against a bank guarantee; and, it was
stipulated that the balance of the total fees, after setting off the
advance paid, will be paid on receipt of the 1st tranche of the
loan disbursement, in terms of Para VII of the Agreement Exh C-
3. Later, efforts made by KJMC had reached the final stage of the
financial arrangement for the requisite loan to be sanctioned; and,
at that stage, parties had agreed to release the bank guarantee
furnished by KJMC against Rs.100.00 lacs already paid to KJMC
as advance by virtue of the 1st Supplementary Agreement dated
20.03.2001 Exh C-20.
32. JKSPDC has failed to establish the allegation that KJMC
had failed in complying will its contractual obligations of
arranging the required facilities for financing the project.
33. This is not a case where the agreement was discovered to
be void or the control became void.
34. In the present case, JKSPDC did not even terminate the
agreement; and, it failed to prove even the dispatch. much less
delivery of the notice dated 09.08.2004 alleged to have been sent
by ordinary post for making the demand for refund of the
advance (Mark: A') which cannot be read in evidence.
35. It is unnecessary to go into the intricacies of the other
arguments advanced by Mr. Sawhney on behalf of KJMC as the
bank guarantee furnished by KJMC had been released. It may
however be noted that KJMC did not even plead in its Reply, and
it did not raise the issue for trial, that the claim for refund was
barred by time.
36. JKSPDC has failed to establish its claim for the refund of
Rs.100 lacs paid to KJMC under Para VII of the Agreement Exh
C-3.
37. In any event, after setting off the advance of Rs.100 lacs
paid by JKSPDC to KJMC; under Issue No.XIII(c) (supra),
KJMC has been found entitled to cash compensation" balance
payment of the principal sum of Rs.68,12,500/- in terms of Para
X.2 of the Agreement Exh C-3. Likewise, are setting of the
advance of Rs.100 lacs paid by JKSPDC to KJMC; under Issue
No.XVI (supra). KJMC has been found entitled to "due fees"
balance payment of the principal Sum of Rs.2,02,50,000/- in
terms of Para X.3 of the Agreement Exh C-3.
38. Issue No. XX has been cast on JKSPDC's claim for
reimbursement of the payment made by it to IDBI (Rs.60 lacs),
SBI (Rs.62.S0 lacs), PNB (Rs.10 lacs), Canara Bank (Rs.10
lacs), HUDCO (Rs.1 lacs) aggregating to the total sum of
Rs.143.50 lacs towards upfront/application/processing fee.
JKSPDC has pleaded that it had paid these charges to the lenders
on the understanding that KJ MC would arrange the required loan
facility. JKSPDC could not avail any loan which was to be
arranged by KJMC JKSPDC is entitled 10 recover the same from
KJMC as it failed in its contractual obligation to arrange the
required loan facility.
39. Agreement Para IV.4 stipulated that the appraisal
charges, also described as processing charges, "will be borne by
JKSPDC". Processing charges have also been described at
several places in the material on record as upfront /application
/processing fee. JKSPDC itself was bound by the agreement to
pay these charges for processing its application for financing the
project. JKSPDC was bound in terms of the agreement and the
usages of the trade applicable to the transaction to pay these
charges to the financing institutions and banks upfront.
40. JKSPDC was bound in terms of the agreement and the
usages of the trade applicable to the transaction to pay these
charges to the financing institutions and banks upfront. KJMC
was not the person to pay the same.
41. The material proceed on record show that the financing
institutions and banks named above besides several other
participating institutions and banks had actually processed
JKSPDC's application and had also issued approval/sanction
letters/Lols corresponding to their respective commitments in
pursuance of the consortium arrangement made by KJMC.
JKSPDC had failed to pay to various other financing institutions
and banks processing charges upfront fee. This was one of the
various defaults on the part of JKSPDC due to which the
arrangement for financing the project got delayed. KJMC had
duly discharged its obligations under the agreement; but financial
closure got delayed and could not be achieved due to the delay
and failure on the part of JKSPDC to fulfil the pre-commitment
conditions for furnishing security. JKSPDC itself was
responsible for not availing the loan arrangement made by KJMC
during the stipulated period of the mandate. All this is evident
from the earlier discussion on various issues including Issue
No.V, Issue No.VII, Issue No.IX, Issue No.X, Issue No.XI,
which was transposed and merged with certain modifications
into Issue X III and Issue No.XV (Supra).
42. It is also pertinent to note, ultimately, Canara Bank had
made the commitment to lend Rs. 73 crores and HUDA had
agreed to contribute Rs 300 crores; and, these two were among
the five common lenders out of the total nine lenders in the
Common Loan Agreement Exh R W 111, which is the subject
manner of discussion under Issue NO.XVI (Supra).
43. JKSPDC is not entitled to reimbursement of the sum of
Rs. 143.50 lacs or any other sum of money from KJMC on
account of payment made by it some of the financial institutions
and banks towards upfront application Processing fee.
44. Issue No.XXI pertains to interest on the total amount of
Counter-claims made by JKSPDC. JKSPDC has claimed
payment of interest from KJMC @ 18% per annum on the refund
amount of @ Rs.100 lacs from 01.01.2000 and for payment of all
the other claims from 06.01.2005 till payment.
45. JKSPDC is not entitled to payment of money on account
of any the Counter claims as discussed under Issue No.XVIII,
Issue No.XIX and Issue No.XX. JKSPDC is not entitled to the
award of interest on the Counter-claim under Issue No.XXI."
19. Now, the question before this Court is whether any interference in
the impugned Award is called for under the scope of Section 34 of the
Act. The respondent has provided the chart in order to depict the case of
the parties before the Arbitral Tribunal and the findings arrived by the
Arbitral Tribunal thereon. The same speaks for itself. The details are
given as under:-
Issue Case of Claimant Reply of petitioner Finding of the Arbitral
No. (Respondent herein) before herein Tribunal
the Arbitral Tribunal
I. Delays in financing had The respondent failed to It was the obligation and
taken place for the reason supply the indicative list responsibility of the petitioner
that the information with or the final list of the to provide on a timely basis all
regard to the financial data required information or project information and
and documents was not documents. documents. It was not
supplied by the petitioner on established that indicative list
time. The respondent had was supplied. The indicative
handed over the indicative list was relevant to the initial
list of initial information, stage of appraisal. At the later
data and documents to be stages, the requirement of
supplied at the time of essential information
negotiations for its necessarily depended upon the
appointment. Final list was subsequent developments
to be prepared as mutually which may not be envisaged at
agreed. IDBI also had the initial stage of
furnished the list of arrangement. The evidence on
information/documents to be record shows delay on the part
given by the petitioner vide of the petitioner in supplying
its letter dtd. 15.07.1999 information and documents
that were required by IDBI for
appraisal of the project. As a
result of delay at the initial
stage, the period of mandate
was extended upto 30.09.2001
and such delay will have no
further effect.
II The respondent had The draft PPA was not The respondent had proved
complied with its mandate to complete. Schedule that it had taken the required
draft the PPA and to assist Defendants thereof was steps for the preparation of the
the petitioner in negotiations to be got completed from draft PPA ; it had given the
with power purchasers. The TCE and four other draft PPA to the petitioner
petitioner was responsible Schedules A, C, F and G which was approved by the
for the delay in finalization were yet to be board of the petitioner
of the PPA. Delay in getting completed. forwarded to the potential
the PPA finalized hindered power purchasers. Financial
the process of appraisal and appraisal was delayed for want
delay the sanction of loans of finalization of the PPA by
by financial institutions and the petitioner and the PP A
banks. was finally signed by the
Petitioner with JKSPDD only
on 13.12.2000. As a result of
the Respondent was entitled to
extension of the Mandate and
the same was extended upto
30.09.2001. Under Issue III,
obligation to promptly supply
information and documents as
per Clause V was not restricted
to the Indicative or final List or
initial stage but extended also
to later stages of arrangement
to "information without which
the progress of the assignment
will be held up" and
"information and documents as
will become available during
of the assignment" and "all
developments". This was
breached by the Petitioner and
it was bound to grant suitable
extension. Respondent was
entitled to further extension.
Assistance of Respondent for
representation was sought 4
months after 31.12.2002
IV, V & The respondent had accepted Mandate did not include The terms of the mandate, the
VI the mandate on the basis of any security condition scope of work and the
assurance that a lien would for the loans to be stipulated modes and terms of
be given on the State arranged. Furthermore, financing clearly indicated that
Consolidated Fund as it was beyond its power security for the loan was tacitly
security for the loans. Mr. to give the first charge understood as a part of the
Justice Dhanuka, Rtd. Judge on the consolidated fund agreement. It was an inherent
of Bombay High Court had for which legislative and intrinsic part. Compliance
opined that a lien on the approval was required. was necessary to complete the
State Consolidated Fund is The condition, therefore, pre-requisite formalities for
Constitutionally valid was unaccomplishable. arrangement of the loans.
provided the Procedures laid Failure on the part of the
down as indicated by him petitioner to furnish security
were followed. Though the rendered it impossible for the
Petitioner and the J & K respondent to perform
Govt. had unequivocally remaining obligations.
given their consent thereto, Progress of the assignment was
they later backtracked. This held up due to breach on part
resulted in non-compliance of the petitioner of its
of the loan condition for the obligations under the mandate.
financial closure belay in The petitioner failed to prove
financing also took place that creation of charge over the
because of the consolidated fund was
noncompliance with the unaccomplishable. Legal
conditions regarding transfer opinion also established that
of Project land for creation the condition for creation of
of mortgage as security for lien on the state's consolidated
the loans. The Petitioner had fund was not un-
earlier provided first charge accomplishable. Petitioner
on consolidated fund of failed and neglected to take
State for its Bond Issue necessary steps for fulfilment
during 1999 to 2003 of pre-commitment conditions
for creation of security
namely, mortgage over the
project land involving
amendment of the Transfer of
Property Act and security by
way of Govt. guarantee
involving a charge over the
Consolidated Fund of the
State. This hindered the
process of financing
arrangement and entitled the
Respondent to further
extension of time. Failure to
extend Mandate would also be
actionable under Para X.l &
Para X.2 of the Agreement.
VII, Respondent performed its As against the estimated The respondent had arranged
VIII & part of obligations under the debt requirement of and got sanctioned reasonable
IX Agreement; it had tied-up Rs.2800 crores claimant facility of the total amount of
sources/raised funds with the could arrange loan Rs.2690 croes. Arrangement,
consortium of financial sanction letters for allocation, commitment,
institutions and banks. In the Rs.350 crores only from approval and sanction are
consortium meeting (i.e. HUDCO Rs.300 croes; various steps taken in process
HIM) held on 18-9-2001 the Central Bank Rs.25 of sanction. After fulfilment
loans were duly tied-up as crores; and PNB Rs.25 of pre-commitment conditions,
follows: IDBI (Rs. 300 crores. The sanction process of tie-up of total debt
Crores), ICICI (300 Crores), letters issued by IDBI, facility requirement will follow
PFC (Rs. 800 Crores), SBI SBI and Canara Bank paving the way for final offer
(Rs.150 Crores subsequently were only in-principle for financial closure in terms
increased to Rs. 200 LIC approvals. Power of the Agreement. Project cost
(Rs. 300 Crores), GIC (Rs. Finance Corporation or total debt requirement are
100 Crores) and J&K Bank only short listed the not specified in Agreement.
(Rs. 140 Crores) = total Rs. Petitioner has not raised
proposal of assistance
2140 Crores. Further loans dispute re steps in arranging
to the extent of Rs. 500 upto Rs. 615 Crores and focused on failed to get
Crores were also arranged subject to detailed total facility sanctioned. On
by the Claimant from: appraisal and did not review of documentary and
Canara Bank Rs. 25 Crores,. reach the sanction stage. oral evidence, total debt
PNB Rs. 25Crores, Bank of As per appraisal the total facility required to be arranged
Baroda Rs. 25 Crores, debt requirement was Rs.3056 Crores, a
Central Bank Rs. 25 Crores, consortium was formed,
Rs.3056 crores,
HUDCO Rs. 300 Crores and Claimant made arrangement
HDFC Rs.100 Crores, and for reasonable facility of
additional Rs.50 crores from Rs.2690 crores. Project
SBI. Cost of Project requirement schedule was not
appraised at Rs.3810 crores laid down.
fell to Rs.3441.6 crores due
to fall in interest rates and
total debt requirement to
Rs.2592.6 crores.
X, XI, Financial closure got Respondent could not Petitioner failed to establish on
XIII delayed and could not take comply with its material on record any
place as the Petitioner contractual obligations deficiency or demur at any
and, thus Petitioner did
backed out of its obligation stage in the service for
not renew the Mandate
to fulfill the conditions which had already been arrangement rendered by the
regarding the security, extended from time to Respondent or any breach of
package and also delayed time. obligations on part of the
furnishing of requisite Respondent. Facts and
information and documents circumstances and evidence
and paying upfront noted under the various issues,
processing fee to lenders. from the beginning of the
Had the Petitioner complied assignment running through
with the terms of security the entire period till the end of
package, got the land December 2002 show that the
transferred in its name for respondent's efforts brought
creation of mortgage and about a stage where financial
provided charge on the closure would have followed
consolidated fund, the had the petitioner taken the
lenders would have necessary steps and complied
disbursed the loan without with pre -commitment
hesitation. conditions laid down in IDBI's
revised LOI dated 1.7.2002
(Exh.R-18). Financial closure
delayed and was not achieved
on account of above mentioned
defaults on the part of the
Petitioner and breach of
obligation under Para V of the
Agreement.
XIV & Petitioner itself proposed I Stipulation of charge Petitioner had not raised any
XV and then unconditionally on Consolidated Fund objection regarding
accepted the condition that it violated the prohibition accomplishability of
would furnish security, inter of RBI against sanction conditions of security at any
alia by creating a first charge of term finance on time before commencement of
on the consolidated fund of security of budgetary the arbitral proceedings. The
the State and mortgage over allocation In RBI argument advanced on basis of
the project land. Respondent circular dated 22.12.95 RBI Circular dated 22.12.95 is
worked assiduously on this which, had the force of rejected for the reason that
premise. Petitioner was law. Estoppel cannot collateral security stipulation
estopped from taking the operate against the law. for State Government
stand that terms and Guarantee involving charge on
conditions so accepted were Consolidated Fund of the State
un-accomplishable. was not hit by the prohibition
Petitioner accepted IDBI's envisaged in para 3(a) of RBI
revised letter of intent dated circular dated 22.12.95. The
1.7.2002 (Exh. R-18) by backtracking on assurance by
resolution of its Board of conveying to the lenders
Directors 29.7.2002 (Exh. C- unwillingness to furnish the
37) & communicated the charge on the Consolidated
same to IDBI by letter dated Fund of the State discouraged
28.8.2002 (Exh.CW-1/14). the lenders. This was a
Terms and conditions significant development and
stipulated by IDBI included the Petitioner was under
State Government guarantee obligation to keep the
and security involving the Claimant posted with it at the
obligation of the State earliest without losing any
Government to create a time. Petitioner failed to
charge on the Consolidated perform its obligation and
Fund of the State. The committed breach of para V.3
Respondent sent various of the Agreement which
communications to the disabled the Claimant in
petitioner who did not proceeding further with the
respond to any of them and matter. The breach entitled the
failed to keep the Respondent to payment of
Respondent posted with compensation under para X.l
developments related to or and para X.2 of the
having a bearing on the Agreement.
financing arrangement.
XVI The Petitioner pursued The financing The Petitioner has
offers which were being arrangements made by misrepresented the contents
pursued by the Respondent the Respondent had and tenor of the security
without knowledge of the lapsed and it was open to package under the second
Respondent and without the Petitioner to adopt consortium. The second
involving it. The Petitioner any financial model it consortium did stipulate a
entered into a common loan liked once the offers had State Government guarantee
agreement dated 19.1.2005 lapsed. The Respondent the enforcement of which has
with lenders, five of whom was not entitled to any like consequence as that of a
namely, PFC, HUDCO, fees under the said para charge on the Consolidated
Central Bank, Canara Bank, X.3 once the Mandate Fund of the State. The
J&K Bank were the same had lapsed. Loans security package was not
with whom the Respondent sanctioned under the materially different. Five of
had pursued financial offers latter consortium were the institutions and banks
under the consortium led by different and more pursued by the Respondent
IDBI. This was in breach of favourable. were part of the second
para X.3 of the Agreement consortium. Appraisal report
(Exh. C-3) and Respondent prepared by IDBI for the first
was entitled to due fees in consortium was utilised by the
terms thereof at 0.25% of the Petitioner in the second
amount so arranged. consortium. It is established
that the Petitioner pursued
offers of sources as were
pursued up by the Respondent
to the extent of Rs.1210
Crores. The Respondent was
therefore entitled to due fees of
Rs.3,02,50,000 (@ 0.25% of
Rs.1210 Crores) being the
amount raised by the Petitioner
from sources pursued by the
Respondent in terms of para
X.3 of the Agreement (Exh. C-
3).
XVII Respondent claimed interest Respondent is not Respondent is entitled to
@ 15% per annum on entitled to any amount simple interest at 12% p.a. for
Amount awarded and question of interest the period from 1.12.2003 upto
does not arise. 30.06.2012. The counter claim
made by the Petitioner for
refund of advance (Rs.1
Crore), reimbursement of
expenses (Rs.1,43,50,000),
damages Rs.200 Crores Total
amount of Rs.202,43,50,000/-
together with interest at the
rate of 18% p.a. stands rejected
as discussed under Issue
Nos.XVIII, XIX, XX & XXI
(consolidated below).
XVIII, Respondents denied the Respondent could not The petitioner has failed to
XIX, XX counter claims on the ground reach even the stage of prove allegations against the
& XXI that the alleged delays or getting requisite sanction Respondent and is not entitled
losses are due to non letters issued following to the payment of Rs.200
fulfilment of commitments which signing of loan Crore or any other sum.
regarding security package agreement and other Petitioner also not entitled to
and non compliance of formalities could have refund of Rs.1 Crore as it
conditions stipulated by been fulfilled leading to failed to establish that the
financial institutions and stage of disbursement. Respondent had failed in
banks for disbursing the complying with its contractual
loans.Respondent performed Petitioner prefers counter obligations. Counter claims
its obligations by arranging claim for damages were also otherwise time
loans with various financial caused on account of barred. Counter claim relating
institutions and banks which delay/failure of the to payments made by the
could not be disbursed Respondent in arranging petitioner to various
exclusively due to the failure finance, refund of institutions and banks towards
of the Petitioner is not advance and upfront/ application/processing
complying with the pre- reimbursement of fee, are rejected as the
commitment conditions expenses and payment of Respondent itself was bound to
stipulated by the lenders and interest on the aforesaid make those payments.
unconditionally accepted by amounts. The aggregate
the Petitioner. It also counter claim amounted
stopped communications to Rs.202,43,50,000/-
with the lenders and the with interest @ 18% p.a.
Respondent and pursued
financial offers from lenders
five of whom were those
with whom the Respondent
had pursued loan offers.
20. From the above, it is clear that all the grounds raised in the present
petition have already been dealt with by the Arbitral Tribunal and the
same are covered. Most of the grounds relate to and seek to challenge
findings of fact arrived at by the learned Arbitral Tribunal after a detailed
and thorough review and consideration of the documentary and oral
evidence on record.
21. With regard to the findings of fact that the petitioner accepted the
security condition of lien/charge on the consolidated fund of the state and
other terms and conditions and the same were not unaccomplishable
pertaining to findings as to norms and practices of consortium lending for
projects as reflected, inter alia, in RBI Circulars and factual sequence of
events, in particular, sequential developments in consortium meetings and
sequence in which letters of sanction/letters of intent came to be issued by
the various banks/institutions.
22. The findings of fact in light of consortium norms, procedures and
practices and, in particular to the paramount import and effect of decision
taken at a Head of Institutions Meeting ("HIM") to go ahead and finance a
project and on that basis and in furtherance thereof, allocate quantum of
funds/ facilities to be provided inter se the financial institutions/banks.
The findings are not contrary to "plain reading of the Agreement" or to
intention of parties nor to the claim or pleadings of the respondent.
23. With regard to the finding of fact that the petitioner committed
breach of Clause V.3 by failing to keep the respondent posted of
developments having a bearing on the financing arrangement at the
earliest without losing time, the same is based on consideration of
evidence on record and sequence of events.
24. The petitioner had, in fact, further pursued financing offers from
sources which were being pursued by the respondent and availed the loans
from them. The findings are based on evidence on record and on fair and
reasonable examination and assessment of terms and conditions of the
financing arrangement and are perfectly justified.
25. The petitioner has challenged the interpretation placed by the
arbitral tribunal on the provisions of the agreement. It is settled law that
interpretation is a matter which falls within the purview of the arbitral
tribunal and the court will not interfere therewith except where the
interpretation rendered is so perverse or absurd that it was not possible for
any person with a rational mind to have taken the view taken by the
Arbitral Tribunal. The interpretation and effect of clause V be read as a
whole along with Clause XV of the Agreement.
26. The petitioner has wrongly stated by stating in Ground B that the
Arbitrator held that the respondent had delayed finalization of the PPA. In
fact, the finding is quite contrary and is to effect that the petitioner had
delayed finalisation of PPA and the respondent was entitled to extension.
The interpretation of Clause V and XV, which are the provisions of the
Mandate Agreement, considering that the same relate to arranging loans
from financial institutions and banks for a mega infrastructure project, has
been reasonably construed by the Arbitral Tribunal.
27. With regard to consortium norms and practices and interpretation of
the Mandate Agreement in the context of its being one relating to
arranging of finance, the Arbitral Tribunal upon consideration of the entire
oral and documentary evidence on record found as a fact that the process
was obstructed and the loan agreement could not be signed due to defaults
of the petitioner itself.
28. In relation to interpretation of clauses of the Agreement providing
for extension of time and the effect thereof, the Arbitrator rightly found
that prolonged delays on the part of the petitioner entitled the respondent
to extension of time as a matter of right and defaults on part of the
petitioner eventually prevented financial closure. The respondent sent
numerous reminders and pointed out delays from time to time.
29. The petitioner has submitted that the Arbitral Tribunal made out a
new case for the respondent by granting compensation under Clause X.
The said argument has no force as it is the case of the respondent that the
petitioner unduly delayed steps required to be taken by it and thereafter
eventually defaulted in doing so and thereby prevented financial closure.
The respondent claimed full fee. The Arbitral Tribunal, however, found
that the respondent would on account thereof be entitled only to
compensation under Clause X and not to full fee.
30. With respect to award of costs which have been rightly awarded on
basis of actual expense reasonably incurred during 8 years of proceedings,
the Arbitrator had on several occasions during the prolonged proceedings
cautioned both the parties that costs would be assessed on realistic terms
in light of expenditure incurred. The costs were established by the
respondent. All the contentions of the petitioner in this regard are baseless
and without any force as the learned Arbitrator Tribunal has already dealt
with the said submissions which do not require any interference within the
scope of Section 34 of the Act.
31. From reading of Clause X.2. and X.3. of the Agreement it is clear
that the same are not intended to operate in the alternative. The line "The
award of A and B above will operate in the alternative" stands out in
isolation on its own without there being any reason assigned there for.
The same is clearly severable and liable to be deleted as prayed for
in the limited objection filed by the respondent herein vide its separate
petition under Section 34 of the Act.
32. The arbitrator in the present case has taken the rationale view after
hearing both the parties, after considering the evidence and by assigning
the cogent and clear reasons which are apparently reasonable, logical and
in unbiased manner while striking the balance on merit. None of the
finding is unreasonable nor is there any infirmity in the award published.
Thus, no ground is made out for interference.
33. In view of the foregoing, the objections are dismissed. All pending
applications also stand disposed of.
34. No costs.
(MANMOHAN SINGH)
JUDGE
MAY 09, 2016
