Gea Egi Contracting / Engineering ... vs Bharat Heavy Electricals Limited
2016 Latest Caselaw 6035 Del

                THE HIGH COURT OF DELHI AT NEW DELHI
%                                      Judgment delivered on: 16.09.2016
+       EX.P. 443/2014
GEA EGI CONTRACTING / ENGINEERING
CO LTD                                               ..... Decree Holder
                                  versus
BHARAT HEAVY ELECTRICALS LIMITED                     ..... Judgment Debtor

Advocates who appeared in this case:
For the Decree Holder       : Mr Sandeep Sethi, Senior Advocate with
                              Mr Puneet Singh Bindra, Mr Aslam
                              Ahmed, Mr Babit Singh Jamwal, Mr
                              Rohan Kaushal, & Mr Sharad Kharra.
For the Judgment Debtor     : Mr Neeraj Kishan Kaul, Additional
                              Solicitor General with Mr Samar
                              Kachwaha, Ms Manvi Adlakha and
                              Mr Basudeb Biswas.
CORAM:-
HON'BLE MR JUSTICE VIBHU BAKHRU
                              JUDGMENT

VIBHU BAKHRU, J

EA(OS) 713/2015

1. GEA EGI Contracting Engineering Co. Ltd. (hereafter 'GEA'), a

company incorporated under the laws of Hungary and having its principal

office at Hungary, has filed the present petition to enforce an arbitration

award dated 21.08.2014 (hereafter 'the impugned award') rendered by an

Arbitral Tribunal in respect of the disputes between GEA and Bharat Heavy

Electricals Limited (BHEL), a Government company incorporated under the

laws of India. The seat of arbitration was in Zurich, Switzerland and the

arbitration was conducted in accordance with the UNCITRAL Rules.

2. BHEL has filed the aforementioned application (being EA (OS)

713/2015) under Section 48 of the Arbitration and Conciliation Act, 1996

(hereafter 'the Act'), inter alia, objecting to the enforcement of the

impugned award principally for two reasons. First, that BHEL has instituted

a suit - Suit No. 878/2014 (hereafter 'Noida Suit') - before the Civil Judge,

Senior Division, Gautam Budh Nagar, inter alia, praying for a mandatory

injunction restraining GEA to enforce the compliance of the impugned

award; and second, that the impugned award is contrary to the public policy

of India as, according to BHEL, the performance of the contract between the

parties was rendered impossible because of civil war like situation in the

Syrian Arab Republic (Syria).

3. Thus, the only controversy to be addressed is whether the impugned

award is enforceable under Part II of the Act as a decree of this Court?

4. Briefly stated, the necessary facts relevant to address the aforesaid

controversy are as under:-

4.1 Public Establishment of Electricity for Generation and Transmission

(PEEGT) is the main shareholder of Tishreen Power Public Corporation

which in turn operates the Tishreen Power Plant. PEEGT and BHEL

entered into a contract on 29.10.2009 (hereafter 'the PEEGT Contract')

whereby BHEL undertook to design, manufacture, transport, erect and

commission necessary equipment for extension of the Tishreen Power Plant

by addition of two units of 200 MW each to the existing capacity of the

Tishreen Power Plant (hereafter 'the Tishreen Project').

4.2 On 01.12.2010, BHEL entered into an agreement (hereafter 'the

Agreement') with GEA for supply and erection of Dry Cooling Heller

System (hereafter 'the Equipment') for the Tishreen Project. In terms of the

Agreement, GEA was to supply equipment, materials and spare parts, CIF

Syrian Port of entry/CIP other modes of transportation. GEA also agreed to

provide design/ data for erection and commissioning procedures; supervise

the erection and commissioning of the equipment as well as the performance

test procedures; completion of performance test; and training of operating

and maintenance personnel. BHEL was obliged to pay for the Equipment in

the manner as provided under the Agreement.

4.3 On 21.05.2012, BHEL requested GEA to defer dispatches of certain

material, which were required at the later stage of the Tishreen Project.

During the period, 23.05.2012 to 06.06.2012, GEA issued pre-shipment

notices indicating their readiness to dispatch certain equipment as

contracted.

4.4 Thereafter, on 13.06.2012, BHEL sent a letter requesting GEA to

"stop dispatches against the subject contract with immediate effect". The

said letter also indicated that the said request was being made because

BHEL's operation at the site of the Tishreen Project was temporarily

suspended with effect from 17.06.2012 till such time the situation becomes

normal, due to "turbulent and unrest conditions" in Syria. The said letter

was followed by a Force Majeure Notice dated 14.06.2012 whereby BHEL

stated that it was temporarily suspending its site operations with effect from

17.06.2012 in view of the advisory received from the Embassy of India,

Damascus advising BHEL to withdraw their staff from the Tishreen Project

site due to rising unrest, continuing hostilities and worsening of the security

situation in Syria. The said notice indicated that in view of the aforesaid

situation, BHEL had no other option but to invoke the force majeure clause

of the Agreement which would be revoked as and when the situation in

Syria became normal.

4.5 On 27.07.2012, GEA issued a request for payment against the letter

of credit to Axis Bank (BHEL's Bankers). On 01.08.2012, BHEL sent an

email advising Axis Bank to disregard the documents presented for payment

and, on 03.08.2012, Axis Bank rejected GEA's request for payment.

4.6 Thereafter, on 15.03.2013, GEA initiated arbitration proceedings by

sending a notice to BHEL, inter alia, appointing its arbitrator in terms of the

arbitration clause in the Agreement. BHEL responded to the aforesaid notice

and appointed its arbitrator. The arbitrators appointed by the parties

appointed the presiding arbitrator in accordance with Article 9.1 of the

UNCITRAL Arbitration Rules, 2010 (hereafter 'UNCITRAL Rules'). The

seat of arbitration was Zurich, Canton Zurich, Switzerland.

4.7 GEA submitted its statement of claims, inter alia, for 90% (80% plus

10%) of the consideration of the Equipment. BHEL, on the other hand,

claimed that by virtue of the force majeure clause - Article 33 of the

Agreement - it was not liable to pay for the Equipment and it also sought a

declaratory relief that the Agreement be suspended without any liability

from 14.06.2012 till the situation in Syria improves for resumption of

construction work at the Tishreen Project site. The Arbitral Tribunal

considered the evidence and the rival contentions and passed the impugned

award on 21.08.2014, which was also communicated to the parties on

25.08.2014.

4.8 On 15.10.2014, BHEL filed the Noida Suit, inter alia, praying for a

mandatory injunction restraining GEA from enforcing the impugned award.

Submissions

5. Mr Neeraj Kishan Kaul, learned Additional Solicitor General

appeared on behalf of the BHEL and contended that the present proceedings

be stayed till the disposal of the Noida Suit as the said suit had been filed

prior to institution of the present proceedings. He submitted that although

Section 10 of the Code of Civil Procedure did not apply, nonetheless, to

avoid any conflict of decisions, the present petition ought to be adjourned.

He also submitted that Noida Suit could be converted to a petition under

Section 34 of the Act for setting aside the impugned award, although, no

application for converting the Noida Suit had been filed.

6. The principal contention advanced by Mr Kaul was that the impugned

award was in conflict with the Public Policy of India and, therefore, by

virtue of Section 48(2)(b) of the Act, enforcement of the impugned award

ought to be declined. He stated that the Tishreen Project could not be

implemented and BHEL had to withdraw its staff from the site, in view of

the unrest, hostilities and civil war-like conditions at the Tishreen Project

site, which was 25kms from the Damascus Airport. He contended that

admittedly the said conditions fell within the scope of force majeure and in

terms of Article 33 of the Agreement, none of the parties were entitled to

claim cost compensation as a result of a force majeure event. He referred to

paragraph 67 and 70 of the impugned award wherein the Arbitral Tribunal

had accepted that the conditions in Syria would make it unreasonable if not

impossible for a foreign party to engage in construction works. He

submitted that under Section 56 of the Indian Contract Act, 1872, BHEL

was absolved from performance of its obligations, since execution of the

Tishreen Project had become impossible due to the force majeure event. He

submitted that in the circumstances, the impugned award awarding GEA's

claims was contrary to the fundamental policy of India.

7. He further contended that the inference drawn by the Arbitral

Tribunal that notwithstanding the force majeure conditions in Syria,

BHEL's was not excused from performing its obligations, was wholly

perverse. He earnestly contended that GEA's obligations under the

Agreement included supervision of erection of the Equipment, performance

test and training and it was impossible for GEA to perform those obligations

since no construction at the site was possible due to the aforementioned

force majeure conditions. He submitted that the Arbitral Tribunal had, thus,

grossly erred in proceeding on the basis that only BHEL was the affected

party under Article 33 of the Agreement. He further submitted that the

Agreement was inextricably linked with the PEEGT Contract; the

Equipment to be supplied by GEA was to be used in the Tishreen Project

and this formed the fundamental basis of the Agreement. The force majeure

conditions affecting BHEL's performance under the PEEGT Contract also

rendered it impossible to perform the Agreement.

8. Mr Kaul referred to the following decisions in support of his

contention that the substratum of the contract was frustrated by force

majeure events : Satyabrata Ghose v. Mugneeram Bangur & Co. and

Another: AIR 1954 SC 44; FA Tamplin Steamship Co. Ltd. v Anglo-

Mexican Petroleum Products Co. Ltd.: (1916) 2 AC 397; Krell v. Henry:

(1903) 2 K.B. 740; and Appleby and Another v. Myers: [L.R.] 2 C.P. 651;

and Industrial Finance Corporation Of India Ltd. v. Cannanore Spinning

and Weaving Mills Ltd. and Ors.: (2002) 5 SCC 54.

9. Mr Kaul also referred to the decision of the Supreme Court in Oil and

Natural Gas Corporation Ltd. v. Western Geco International Ltd.: (2014)

9 SCC 263 in support of his contention that in cases where the arbitrators

have failed to draw the inference which they ought to have drawn or which

on the face of it is untenable, the resultant arbitral award would be open to

challenge as offending the fundamental policy of Indian Law.

10. Mr Sandeep Sethi, learned Senior Advocate appearing for GEA,

countered the submissions made on behalf of Mr Kaul. He submitted that

the Agreement was governed by Swiss laws and the Arbitral Tribunal had

applied the said laws while interpreting Article 33 of the Agreement (the

force majeure clause). He submitted that the force majeure clause as

agreed, only suspended the performance of obligations of the affected party

only to the extent that the force majeure conditions prevented such

obligations to be performed. He submitted that in the present case, BHEL's

obligations were limited to paying the consideration as agreed under the

Agreement and the said obligations were not rendered impossible on

account of the force majeure conditions. He submitted that the Arbitral

Tribunal had considered the above and, therefore, the impugned award was

liable to be enforced. He contended that the PEEGT Contract was

independent of the Agreement and the Arbitral Tribunal had held that

although the contracts were related, BHEL's obligation to pay for the

Equipment was not dependent on performance of the PEEGT Contract.

11. Mr Sethi relied on the decision of this Court in Gopi Chand and Anr.

v. D.S.C. Finance Development Corporation Ltd.: 108 (2003) DLT 41 and

the decision of the Calcutta High Court in Katras Jherriah Coal Co. Ltd. v.

Mercantile Bank: AIR 1981 Cal 418 in support of his contention.

Reasoning and conclusion

12. It is difficult to understand as to how a suit to restrain GEA from

enforcing the impugned award would lie. On being pointedly asked as to

how the Noida Suit would be maintainable, Mr Kaul responded that

although the suit may not be maintainable but, nonetheless, the Noida Suit

could be converted into a petition under Section 34 of the Act for setting

aside the impugned award. He stated that such course was not unknown and

in Bhatia International v. Bulk Trading S.A.& Anr: (2002) 4 SCC 105, the

suit filed was construed as a petition under Section 34 of the Act. He fairly

admitted that no application for converting the Noida Suit had been filed.

He was also pointedly asked as to how the petition under Section 34 of the

Act would be maintainable considering that Seat of Arbitration was Zurich,

Switzerland and the terms of the Agreement Swiss law would be applicable.

Mr Kaul did not advance any contentions on the said controversy except to

state that the issue as to the maintainability of a petition under Section 34 of

the Act would be considered by the concerned Court in Gautam Budh

Nagar, NOIDA where the Noida Suit was pending.

13. At the outset, it is necessary to observe that there is no dispute that:

(i) the place of arbitration was Zurich; (ii) in terms of the Article 32 of the

Agreement, the Agreement was agreed to be "governed and construed

according to the prevailing Swiss Material Law" ; (iii) in terms of Article 34

of the Agreement, the parties had expressly agreed that for resolution of

their disputes, they shall subject themselves to the exclusive competence of

the Arbitration Court attached to the Zurich Chamber of Commerce,

Switzerland; and (iv) the arbitration was conducted in accordance with

UNCITRAL Rules to which the parties had agreed to be bound by. Thus,

indisputably, the impugned award is a foreign award within the meaning of

Section 44 of the Act.

14. It is settled law that Part -I of the Act would have no application in

cases where the place of Arbitration is outside India and the parties have

agreed to subject themselves to laws other than Indian Law. Since the law

declared by the Constitution Bench of the Supreme Court in Bharat

Aluminium Company v. Kaiser Aluminium Technical Services Inc: (2012)

9 SCC 552 is applicable prospectively (to the agreements entered into after

the date of the said decision), the law as explained in Bhatia International

(supra) would be applicable. In that case the Supreme Court held that:

"In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case the laws or rules chosen by parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules will not apply."

15. In Eitzen Bulk A/S and Ors. v. Ashapura Minechem Ltd. and Ors.:

AIR 2016 SC 2438, the Supreme Court was concerned with a case where

the appellant had filed an application under section 47/49 of the Act for

enforcement of a foreign award in Bombay High Court and the respondent

had filed a prior petition under section 34 of the Act before the District

Judge, Jamnagar. The Supreme Court considered the relevant clauses and

held that the Part-I of the Act would not apply. The relevant extract of the

said judgment is reproduced below:-

"26. According to the learned counsel, Clause 28, which is the Arbitration Clause in the Contract, clearly stipulates that any dispute under the Contract "is to be settled and referred to Arbitration in London". It further stipulates that English Law to apply. The parties have thus clearly intended that the Arbitration will be conducted in accordance with English Law and the seat of the Arbitration will be at London.

27. The question is whether the above stipulations show the intention of the parties to expressly or impliedly exclude the provisions of Part I to the Arbitration, which was to be held

outside India, i.e., in London. We think that the clause evinces such an intention by providing that the English Law will apply to the Arbitration. The clause expressly provides that Indian Law or any other law will not apply by positing that English Law will apply. The intention is that English Law will apply to the resolution of any dispute arising under the law. This means that English Law will apply to the conduct of the Arbitration. It must also follow that any objection to the conduct of the Arbitration or the Award will also be governed by English Law. Clearly, this implies that the challenge to the Award must be in accordance with English Law. There is thus an express exclusion of the applicability of Part I to the instant Arbitration by Clause

28. In fact, Clause 28 deals with not only the seat of Arbitration but also provides that there shall be two Arbitrators, one appointed by the charterers and one by the owners and they shall appoint an Umpire, in case there is no agreement. In this context, it may be noted that the Indian Arbitration and Conciliation Act, 1996 makes no provision for Umpires and the intention is clearly to refer to an Umpire contemplated by Section 21 of the English Arbitration Act, 1996. It is thus clear that the intention is that the Arbitration should be conducted under the English law, i.e. the English Arbitration Act, 1996. It may also be noted that Sections 67, 68 and 69 of the English Arbitration Act provide for challenge to an Award on grounds stated therein. The intention is thus clearly to exclude the applicability of Part I to the instant Arbitration proceedings.

28. This is a case where two factors exclude the operation of Part I of the Arbitration Act. Firstly, the seat of Arbitration which is in London and secondly the clause that English Law will apply."

16. A similar view was expressed by the Supreme Court in Union of

India v. Reliance Industries Limited and Ors.: (2015) 10 SCC 213, herein

the Supreme Court held as under:

"21. The last paragraph of Balco judgment has now to be read with two caveats, both emanating from paragraph 32 of Bhatia International itself - that where the Court comes to a determination that the juridical seat is outside India or where law other than Indian law governs the arbitration agreement, Part-I of the Arbitration Act, 1996 would be excluded by necessary implication. Therefore, even in the cases governed by the Bhatia principle, it is only those cases in which agreements stipulate that the seat of the arbitration is in India or on whose facts a judgment cannot be reached on the seat of the arbitration as being outside India that would continue to be governed by the Bhatia principle. Also, it is only those agreements which stipulate or can be read to stipulate that the law governing the arbitration agreement is Indian law which would continue to be governed by the Bhatia rule.

22. On the facts in the present case, it is clear that this Court has already determined both that the juridical seat of the arbitration is at London and that the arbitration agreement is governed by English law. This being the case, it is not open to the Union of India to argue that Part-I of the Arbitration Act, 1996 would be applicable. A Section 14 application made under Part-I would consequently not be maintainable."

17. In view of the above, it is amply clear that Part-I of the Act would not

be applicable and, therefore, a petition under section 34 of the Act for

setting aside the impugned award would not be maintainable. Thus, there is

no merit in the contention that the Noida Suit can be converted to a petition

under section 34 of the Act. In my view, merely filing of Noida Suit - which

is ex facie incompetent - cannot be a ground for staying the present petition.

In view of the above, I am unable to accept the contention that the present

petition is liable to be stayed to await the decision in the Noida Suit.

18. The next question to be considered is whether BHEL has furnished

any grounds, as indicated under Section 48 of the Act, to decline

enforcement of the impugned award.

19. There is no dispute that the Arbitral Tribunal was constituted in

accordance with the Agreement between the parties and the arbitration was

conducted in accordance with the UNCITRAL Rules as agreed. Although, it

is averred in the application that principles of natural justice were not

followed, no such contention was advanced by Mr Kaul during the course of

his arguments. Further, it is apparent from the record that BHEL had

participated in the arbitral proceedings and had full opportunity to meet the

case set up by GEA. Thus, the only contention that remains to be considered

is whether enforcement of the impugned award would be contrary to the

public policy of India.

20. The principal dispute before the Arbitral Tribunal was whether BHEL

was absolved of performing its obligation on account of the situation in

Syria. The Arbitral Tribunal had accepted the contention that it was

unreasonable for a foreign party to engage in construction works at the

Tishreen Project site. It had also noted that even GEA had described the

conditions in Syria as "a tragic civil war". In the circumstances, the Arbitral

Tribunal held that BHEL's decision to cease construction was

"understandable". However, the Arbitral Tribunal proceeded to hold that the

conditions in Syria did not absolve BHEL from performing its payment

obligations.

21. The Arbitral Tribunal accepted that the Agreement and the PEEGT

Contract were related, but rejected BHEL's contention that BHEL's payment

obligations were conditional upon receiving payments from PEEGT. The

Arbitral Tribunal held that BHEL's obligations under the Agreement were

not dependent on the PEEGT Contract even though the contracts were

related; according to the Arbitral Tribunal, the relationship between the two

contracts was not such so as to render BHEL's obligations under the

Agreement dependent on performance of the PEEGT Contract. Admittedly,

GEA was not a party to the PEEGT Contract and although the

Memorandum of Understanding (MOU) between the parties did indicate

that the contracts would be back to back, the relevant clauses under the

MOU were not incorporated in the Agreement.

22. The fulcrum of the dispute before the Arbitral Tribunal was the

interpretation of Article 33 of the Agreement, which reads as under:-

"Art. 33-Force Majeure:

Force Majeure events shall be those that prevent any of the Parties from fulfilling any of their contractual obligations, that are beyond their control and that could not be foreseen and avoided during the implementation of the Contract.

The Party affected by force Majeure event shall notify the other Party within 3 work days of the occurrence of the Force Majeure event, with the indication of the beginning date and expected duration of the event, also providing an evidence of the event. In case Seller is affected by the force Majeure event, his submission of documents evidencing the force Majeure conditions shall be approved by the consulates of SAR if the event of the Force Majeure occurred outside the Syrian Arab Republic. Subject to providing proper evidence by the Seller on the Force Majeure event, inaction of the consulates of the SAR in handling such application, or unreasonable withholding of approval qualifies for Force Majeure. None of the Parties are entitled to claim cost compensation from the other Party as a result of the Force Majeure event, and the Party that was affected by the event shall be provided equitable extension of time. The Party affected shall be obliged to make best efforts to mitigate the effect of Force Majeure event on the Contract. The non-affected Party shall be notified by the affected Party within 3 workdays about the cessation of the Force Majeure event.

Should a Force Majeure event last over 120 days, the Parties shall convene and discuss the effect of continuation of the Contract. If no agreement is reached within 30 days, i.e. in 150 days from the date of beginning of Force Majeure event, any of the Parties may terminate the Contract."

23. The Arbitral Tribunal interpreted the aforesaid clause of the

Agreement in the context of the applicable Swiss Laws and held that the

aforesaid force majeure clause did not free BHEL from performance of its

obligations. The Arbitral Tribunal interpreted BHEL to be an affected party

and its obligations could be suspended only if the force majeure event

prevented BHEL from performing its obligations. The contention that

BHEL would be completely free of its obligations was - on an interpretation

of Article 33 of the Agreement - not accepted. The Arbitral Tribunal further

held that the force majeure events in Syria did not prevent BHEL's ability to

perform its obligations, namely, to pay GEA for the Equipment.

24. It is also relevant to note that the Arbitral Tribunal examined the

evidence and found that BHEL had not suspended or terminated the

Agreement but had merely asked GEA to go slow in manufacturing and to

withhold shipments. The Arbitral Tribunal held that BHEL was entitled to

do so but in terms of the Agreement, was obliged to pay for the Equipment

and storage. The Arbitral Tribunal observed that suspension of the

Agreement by BHEL would have enabled GEA to terminate the Agreement

and inferred that BHEL wanted to avoid the same.

25. It is apparent from the above that the entire subject matter of dispute

between the parties turned on the interpretation of the Agreement. The

Arbitral Tribunal's finding that the Agreement and PEEGT Contract were

not inter-related in the manner so as to absolve BHEL from performing its

obligations, cannot be faulted and in any view, cannot be held to be perverse

or so unreasonable that no reasonable person could have come to that

conclusion. Similarly, the Arbitral Tribunal's interpretation of Article 33 is

well reasoned and I find no infirmity with the same.

26. The scope of objections under Section 48(2)(b) of the Act is very

limited. In Shri Lal Mahal Limited v. Progetto Grano Spa: (2014) 2 SCC

433, the Supreme Court had held that its interpretation of the public policy

principle as interpreted in its earlier decision in Renusagar Power Co. Ltd.

v. General Electric Co.: 1994 Supp. (1) SCC 644 rendered in the context of

Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement)

Act, 1961 "would apply equally" to the interpretation of the defence of

public policy under Section 48(2)(b) of the Act.

27. In Renusagar (supra), the Supreme Court held that the defence to

recognition and enforcement of a foreign award as being contrary to public

policy as available under Section 7(1)(b)(ii) of the Foreign Awards

(Recognition and Enforcement) Act, 1961 must be construed narrowly. In

that case, the Court explained that:

"This would mean that 'public policy' in Section 7(1)(b)(ii) has been used in a narrower sense and in order to attract the bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Since the Foreign Awards Act is concerned with recognition and enforcement of foreign awards which are governed by the

principles of private international law, the expression 'public policy' in Section 7(1)(b)(ii) of the Foreign Awards Act must necessarily be construed in the sense the doctrine of public policy is applied in the field of private international law. Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality."

28. In Shri Lal Mahal Limited (supra), the Supreme Court held that the

above principles for interpreting the defence of the ground of public policy

as enunciated in Renusagar's case, would be equally applicable to interpret

the defence of public policy under Section 48(2)(b) of the Act. The Court

further overruled its earlier decision in Phulchand Exports Ltd. v. O.O.O.

Patriot: (2011) 10 SCC 300, wherein it was held that the expression 'Public

Policy of India' as used in Section 48(2)(b) of the Act had to be given a

wider meaning and the award could be set aside if it is patently illegal. The

relevant extract of the decision in Shri Lal Mahal Limited (supra) is

reproduced below:-

"29. We accordingly hold that enforcement of foreign award would be refused under Section 48(2)(b) only if such enforcement would be contrary to a (1) fundamental policy of Indian law; or (2) the interests of India; or (3)justice or morality. The wider meaning given to the expression "public policy of India" occurring in Section 34(2)(b)(ii) in Saw Pipes is not applicable where objection is raised to the enforcement of the foreign award under Section 48(2)(b).

30. It is true that in Phulchand Exports a two-Judge Bench of this Court speaking through one of us (R.M. Lodha, J.) accepted the submission made on behalf of the appellant therein that the meaning given to the expression "public policy of India" in Section 34 in Saw Pipes must be held applied to the same expression occurring in Section 48(2)(b) of the 1996 Act. However, in what we have discussed above it must be held that the statement in para 16 of the Report that the expression "public policy of India used in Section48(2)(b) has to be given a wider meaning and the award could be set aside, if it is patently illegal" does not lay down correct law and is overruled."

29. As is apparent from the above, the scope of refusing enforcement of a

foreign award on the ground that it is contrary to the public policy is very

narrow. The ground that foreign award is contrary to any provision of Indian

Law is not sufficient to refuse its enforcement. Mr Kaul's contention must

be considered in the context of Section 48(2)(b) of the Act.

30. As noted above, Mr Kaul's contention mainly revolves around Section

56 of the Indian Contract Act, 1872. The crux of his arguments was that in

terms of Section 56 of the Indian Contract Act, 1872, BHEL was absolved

of its obligations because the performance of the PEEGT Contract had been

rendered impossible due to force majeure conditions and this would also

frustrate the Agreement; he had argued that this was so because there was

no possibility of GEA rendering any supervisory functions since the

construction itself had been ceased.

31. First and foremost, it is necessary to bear in mind that Indian Contract

Act, 1872 is - as contracted by the parties - not applicable to the Agreement.

32. Secondly, it does not appear that at the material time, BHEL had

taken a stand that the Agreement was discharged on the ground of

frustration. The Arbitral Tribunal had carefully noted that BHEL's request

was only to withhold shipment and not to terminate or suspend the

Agreement. The Arbitral Tribunal had inferred that BHEL had not

suspended the Agreement in order to avoid its consequences; that is, to

avoid enabling GEA to terminate the Agreement.

33. Thirdly, in view of the Arbitral Tribunal's finding that PEEGT

Contract and the Agreement were not related in the manner as contended by

BHEL, the impossibility to perform the PEEGT Contract would not absolve

BHEL from performing its payment obligations. It is essential to note that it

is the PEEGT Contract, that is hit by force majeure. BHEL is not in a

position to complete the PEEGT Contract - not the Agreement - and that

would not absolve BHEL from performing its obligations to GEA; merely

because BHEL cannot use the Equipment, cannot be the ground for

absolving BHEL from performing its payment obligations.

34. Mr Kaul had strongly relied upon the decision of FA Tamplin

Steamship Co. Ltd. (supra). In that case, the court had held that a court

ought to have examined the contract in the context of the circumstances in

order to see whether from the nature of things, the parties had made their

bargain on a foundation of certain facts as existing thereby reading in an

implied term that if certain conditions did not exist, the parties were

absolved from their bargain. The aforesaid principle was also referred to by

the Supreme Court in Cannanore Spinning and Weaving Mills Ltd.

(supra).

35. In the present case, the Arbitral Tribunal has examined the same and

came to the conclusion that although certain clauses, which indicated that

payment would be made as and when received, were included in the MOU

executed between the parties, similar clauses were not included in the

Agreement; and the parties had, thus, agreed that the payment obligations

under the agreement were not dependent on the PEEGT Contract. The

Arbitral Tribunal had taken a view - rightly or wrongly - that the conditions

in Syria did not affect the payment obligations. This certainly is a

reasonable, if not the correct, view to take.

36. In Gopi Chand (supra), this Court considered a case where the

petitioners had taken a loan from respondents for purchase of buses. The

plying of diesel buses in the National Capital Territory of Delhi was banned

by the Supreme Court on environmental issues. On the aforesaid basis, the

petitioners sought to avoid their repayment obligations to the respondents

pleading that the performance of contract had been rendered impossible due

to subsequent events. This Court repelled the aforesaid contention and held

that the financing agreement was a separate agreement and the petitioners

could not avoid their liability on the ground that they were not able to ply

the buses for which the loan was taken. A similar view was expressed by

the Calcutta High Court in Katras Jherriah Coal Co. Ltd. (supra).

37. Lastly - and most importantly - the decision of the Arbitral Tribunal

turned on the interpretation of Article 33 of the Agreement. There is no

denying that the interpretation of the said Article is a reasonable one, if the

not the correct one. It is settled law that even if arbitrator commits an error

in construction of a contract, such an error is within his jurisdiction and

would not be amenable to interference under Section 34 of the Act (See:

Mcdermott International Inc. v. Burn Standard Co. Ltd.: (2006) 11 SCC

181); a fortiori, the enforcement of a foreign award cannot be declined for

the reason that the agreement has been erroneously interpreted.

38. The decision in Oil and Natural Gas Corporation Ltd. (supra) is of

little assistance to BHEL. First of all, for the reason that in that case, the

Supreme Court was concerned with the interpretation of the expression

"Public Policy of India" as a ground for setting aside the award under

Section 34(2)(b)(ii) of the Act. Secondly, even in the context of Section 34

of the Act, the Court had held that an award would be interfered with as

being in conflict with the public policy of India on the wednesbury

principle; that is, if the decision is so perverse or irrational that no

reasonable person could have arrived at the same. Clearly, the impugned

award is not unreasonable on the touchstone of the wednesbury principle.

39. In view of the aforesaid, the Court finds no merit in the application.

The same is, accordingly, dismissed.

VIBHU BAKHRU, J SEPTEMBER 16, 2016 RK