Delhi High Court
Kss Petron Private Ltd. & Anr. vs Hpcl -Mittal Energy Limited & Anr on 10 April, 2017
$~41
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. (COMM) 172/2017
KSS PETRON PRIVATE LTD. & ANR. ..... Petitioners
Through: Mr A.S. Chandhiok, Mr Sanjeev Puri,
Senior Advocates with Mr Sidharth
Sethi, Ms Aruveena and Mr Anupam,
Advocates.
versus
HPCL -MITTAL ENERGY LIMITED & ANR. ..... Respondents
Through: Mr Sandeep Sethi, Senior Advocate
with Mr Kartik Nayar, Mr Rishab
Kumar, Mr Prakhar Deep, Ms Sonali
Mehta, Advocates.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
ORDER
% 10.04.2017
VIBHU BAKHRU, J
IA No. 4157/2017
1. Allowed, subject to all just exceptions.
2. The application is disposed of.
IA No. 4158/2017
3. This is an application seeking condonation of delay in re-filing.
4. For the reasons stated in the application, the same is allowed.
O.M.P. (COMM) 172/2017
5. Issue notice.
6. The learned counsel for the respondents accepts notice.
7. With the consent of the parties, the petition is taken up for final
hearing.
8. The petitioners have filed the present petition under Section 34 of the
Arbitration and Conciliation Act, 1996 (hereafter 'the Act'), inter alia,
impugning an arbitral award dated 23.11.2016 (hereafter 'the impugned
award') passed by the arbitral tribunal constituted by Justice Dr.
Mukundakam Sharma (Retired), Presiding Arbitrator, Justice Mukul Mudgal
(Retired) and Mr K.K. Singal. The impugned award was delivered by
majority with Mr K.K. Singal dissenting.
9. The disputes involved between the parties essentially related to the
question whether the settlement between the parties as recorded in the
settlement agreement dated 24.08.2012 (hereafter 'the Settlement
Agreement') stood rescinded on account of alleged failure on the part of the
respondents to pay the Settlement Amount as agreed under the Settlement
Agreement. The petitioners claim that the respondents had committed a
breach of clause 7.1 of the Settlement Agreement by failing to make
payment of the Settlement Amount and, therefore, their claims which were
settled pursuant to the Settlement Agreement stood revived. The arbitral
tribunal (by majority) has rejected the aforesaid claim. The petitioners seek
to challenge the impugned award principally on the ground that the
impugned award is contrary to the express terms of the Settlement
Agreement.
10. Briefly stated the relevant facts necessary to address the controversy
are as under:-
10.1 Petitioner no.1, KSS Petron Pvt. Ltd. (hereafter 'KPPL') is a company
engaged in Engineering, Procurement and Construction (EPC) contracts in
Oil & Gas, Infrastructure and Industrial Sectors. Petitioner no.2, Petron
Engineering Construction Ltd. (hereafter 'PECL') is stated to be a leading
engineering and construction company. Petron Civil Engineering Pvt. Ltd.
(hereafter 'PCEPL') was also one of the contracting parties and has since
merged with KPPL. KPPL, PCEPL and PECL are hereinafter collectively
referred to as 'the contractors'. Respondent no.1, HPCL-Mittal Energy
Limited (hereafter 'HMEL') is a joint venture company between Hindustan
Petroleum Corporation Ltd., a Government of India enterprise and Mittal
Energy Investments Pte. Ltd. Respondent No.2, HPCL-Mittal Pipelines
Limited (hereafter 'HMPL') is a wholly owned subsidiary of HMEL.
HMEL/HMPL entered into various contracts with respect to a project
relating to setting up a refinery at Bathinda, Punjab. There were nine
contracts in all, out of which seven were entered into between HMEL on one
part and KPPL or PCEPL and PECL on the other part. Two contracts were
entered into between HMPL on one part and KPPL on the other part.
10.2 Certain disputes arose between the contractors and the respondents in
respect of the nine contracts. Consequently, PCEPL (now merged with
KPPL) commenced arbitration proceedings against HMEL in respect of
three contracts. In respect of one of the contracts, arbitral tribunal was
constituted. However, in respect of the two other contracts, PCEPL objected
to the appointment of the sole arbitrator and initiated proceedings under
Section 14 of the Act.
10.3 While the said proceedings were pending, the said parties (contractors
and the respondents) entered into the Settlement Agreement dated
24.08.2012. In terms of the Settlement Agreement, the contractors settled
their claims for an aggregate consideration of ₹1,42,45,59,195/- (the
Settlement Amount). The break-up of the Settlement Amount under each
contract was listed in 'Schedule E' of the Settlement Agreement.
10.4 The relevant clauses of the Settlement Agreement are set out below:-
"4. SETTLEMENT AMOUNT:
4.1 HMEL and the Contractors have hereby settled HMEL's
Claims and the Contractor's Claims in consideration of
Rs. 1,42,45,59,195 (Rupees One Hundred Forty Two
Crore Forty-five Lakh Fifty-nine Thousand One hundred
Ninety five only) ("Settlement Amount"). The break-up
of the Settlement Amount under each Contract is
described in Schedule E hereto.
4.2 The Parties further agree that Settlement Amount
constitutes a full and final settlement of the Contractors
and HMEL Claims, whether or not the Claims are
considered by the Contractors and HMEL to be in
relation to works under or arising under the Contracts
and/or not under or not arising under the Contracts and/or
outside the scope of the Contracts and includes any
claims of the Contractors and HMEL with respect to all
the deductions carried out.
4.3 The Parties further agree that after giving effect to the
HMEL's Release and the Contractors' Release, as set
forth in Clauses 2.1 and 3.1 hereof, the Settlement
Amount, subject to the deductions of TDS on account of
WCT and other applicable taxes deductible at source,
shall be payable by HMEL in accordance with Clause 7.
4.4 It is clarified that the Settlement Amount shall not in any
event be payable in part to any Contractor and shall be
payable only in entirety to the Contractors (acting jointly)
on the completion of all of the Contractor's obligations
under Clause 7.
4.5 For avoidance of doubt, it is clarified that Retained
Amount under clause 6 and Reimbursements under
clause 8 are not part of the Settlement Amount.
xxxx xxxx xxxx
7. PAYMENTS:
7.1 Subject to clause 4.1 and 7.2, Parties agree that the total
amount payable by HMEL to the Contractors under this
Clause is the Settlement Amount.
HMEL shall pay the Settlement Amount to the
Contractors against ninety days irrevocable usance L/C,
which shall be opened by HMEL, as per the format
specified in Schedule G. The payment shall be made by
HMEL within seven days of accomplishing of all the
following by the Contractors:
(a) Parties forthwith withdrawing their Claims before
the Arbitral Tribunal, the Delhi High Court and
any other Court or Tribunal including Arbitral
Tribunal having any pending litigations brought by
the Parties in relation to the Contracts;
(b) Each Contractor submitting an indemnity Bond as
per the format given in Schedule H hereto, under
each Contract before HMEL making payment of
the Settlement Amount.
7.2 The Parties agree that they shall submit withdrawal
application, (if required the withdrawal application may
be made jointly) as per the format given in Schedule-I,
within seven days from the date of this Agreement before
the Arbitral Tribunal, the Delhi High Court and any other
Court or Tribunal including Arbitral Tribunal having any
pending litigations brought by the Parties in relation to
the Contracts with respect to all their claims/counter
claims and stay application/litigations.
7.3 In the event of failure of HMEL in making the payment
of the Settlement Amount after completion of all the
actions as stated in Clause 7.1 read with Clause 7.2,
hereinabove, this Settlement Amount shall be treated as
cancelled on expiry of seven days from the time period
agreed in clause 7.1 above being the outer time limit, and
all the rights of the Parties shall survive including revival
of the Arbitral and Court proceedings. Further, in the
joint application of the Parties, it shall be stated that in
the event of non-payment of the Settlement Amount by
HMEL in accordance with Clause 7.1 read with Clause
7.3, the Parties shall have the right to revive such arbitral
and court proceedings.
7.4 Applicable discounting charges for usance period of L/C
shall be shared between the Contractors and HMEL in
the ratio of 40/60 respectively and reimbursed by HMEL
within seven days after receipt of relevant supporting
documentation from the Contractors in that regard. It is
clarified that such reimbursement shall be additional to
the Settlement Amount.
7.5 For avoidance of doubt it is clarified that Retained
Amount under clause 6 and Reimbursement under clause
8 are not part of the Settlement Amount."
11. After the Settlement Agreement was entered into, the parties filed a
joint application dated 24.08.2012 before the arbitral tribunal seeking to
withdraw their claims and counter claims and the same were allowed.
Similarly, upon applications filed before this Court, the petitions were
disposed of in terms of the Settlement Agreement by an order dated
30.08.2012. It is not disputed that in terms of the Settlement Agreement, the
Settlement Amount was to be paid on or before 07.09.2012.
12. Admittedly, a sum of ₹1,41,24,24,998/- was paid to the petitioners on
04.09.2012; that is, within the time frame as agreed under the Settlement
Agreement.
13. On 19.09.2012, the parties entered into an Addendum to the
Settlement Agreement. On 21.06.2013 - almost nine months after receiving
the payment - KPPL sent a letter to HMEL claiming that in terms of clause
7.1 of the Settlement Agreement, the respondents were liable to pay an
amount of ₹1,42,45,59,195/- but had only paid ₹1,39,67,89,756/- and hence,
there was a shortfall in payment. The petitioners claimed that by virtue of
clause 7.3 of the Settlement Agreement, failure to pay the full amount had
resulted in cancellation of the Settlement Agreement and their respective
rights and claims under the contracts stood revived. The petitioners also
sought to revive the arbitral proceedings.
14. The respondents filed a petition before this Court (being OMP
826/2013) which was disposed of on 30.10.2013 by, inter alia, observing if
a new tribunal is constituted, both parties would be free to agitate their
respective points of view qua the Settlement Agreement dated 24.08.2012.
Thereafter, on 14.11.2013, the petitioners invoked the arbitration clause
under the Settlement Agreement and nominated their arbitrator. The
respondents also nominated their arbitrator and both the arbitrators
appointed Justice Dr. Mukundakam Sharma (Retired) as the third arbitrator
and the arbitral tribunal was constituted.
15. The petitioners filed their claim before the arbitral tribunal, inter alia,
seeking a declaration that HMEL had breached clause 7.1 of the Settlement
Agreement; the Settlement Agreement stood cancelled; and all the rights of
the petitioners survived including arbitration proceedings instituted earlier.
16. The arbitral tribunal considered the rival contentions and after
examining the evidence on record, passed the impugned award rejecting the
petitioners' claim.
17. The arbitral tribunal held that the petitioners had accepted the
Settlement Agreement as final and binding. The arbitral tribunal held that
there was a deviation in the Settlement Amount with regard to the amount
payable as well as in the mode of payment but the same was agreed and
accepted to by the petitioners and, therefore, the obligation to pay the
Settlement Amount stood discharged.
18. The petitioners being aggrieved by the impugned award have
preferred the above petition.
Submissions
19. Mr Chandhiok, learned Senior Counsel appearing on behalf of the
petitioners contended that the arbitral tribunal had grossly erred in returning
the finding that the petitioners had agreed and accepted the short payment in
discharge of the Settlement Amount. He further contended that there was no
dispute that the payments made by the respondents were less than the
Settlement Amount and thus, the impugned award was contrary to the
express terms of the Settlement Agreement.
20. Next, he referred to emails dated 28.08.2012, 29.08.2012, 03.09.2012
and 04.09.2012 exchanged between the parties and submitted that the initial
emails had correctly reflected the basic amount of ₹1,42,45,59,195/- which
was unilaterally altered in the subsequent mails to ₹1,41,24,24,998/-. He
submitted that the only issue that was being discussed was the deviation in
method of making payment of the Settlement amount; whereas as per the
Settlement Agreement, the payment was to be made by issuance of letter of
credit, it was now proposed to be made by HMEL by taking credit from its
bank as the financing charges (interest rate) was lower. The petitioners had
agreed to bear their share of 40% of the interest charges. He stated that there
is no other document on record which would indicate that the petitioners had
agreed to accept a sum lower than the Settlement Amount.
21. Mr Sethi, learned Senior Counsel appearing for the respondents
countered the aforesaid submissions and also referred to the emails
exchanged on 04.09.2012. According to him, these mails clearly indicated
that the petitioners had agreed to accept the amounts that were remitted by
the respondents.
Reasoning and Conclusion
22. As noted above, there is no dispute that the Settlement Amount was to
be paid within a period of seven days from the parties withdrawing their
claims and each contractor (KPPL, PECL and PCEPL) submitting an
indemnity bond in the format as provided in schedule H to the Settlement
Agreement; that is, on or before 07.09.2012. In terms of clause 7.1, the
Settlement Amount was to be paid against 90 days irrevocable usance L/C
(as per format as specified in Schedule G of the Settlement Agreement). In
terms of clause 7.4, of the Settlement Agreement, the applicable discounting
charges for usance period of L/C were to be shared between Contractors and
HMEL in the ratio of 40:60. Admittedly the said terms were altered;
however, there is a dispute as to whether only the method of payment was
modified or whether the basic Settlement Amount was altered as well. In
this regard, certain emails exchanged between the parties are important.
23. On 29.08.2012, Gourav Bhatia of HMEL sent an email seeking
confirmation of the amount payable as indicated in the table quoted below:-
"Dear Sir,
Please find the revised tabulation sheet for your confirmation
Company Basic Taxes WHT Net Payable
Petron Engg 65,117,201 4,603,676 (3,248,341) 72,969,218
Petron Civil 625,482,354 24,967,488 13,408,616 637,041,226
KSS-(HMEL + 733,959,640 133,335,785 56,198,893 811,096,532
HMPL)
1,424,559,195 162,906,949 66,359,167 1,521,106,977
Regards
Gourav"
24. The aforesaid calculations were confirmed on behalf of the
petitioners. It does appear that thereafter there were certain other discussions
and on 04.09.2012, the following email was sent by Mr Abhinandan Lodha
of HMEL to Mr Maheshwari of KPPL. The said mail reads as under:-
"Dear Mr. Maheshwari,
With reference to the discussion I would like the confirm the
company has got financing on its own line @10.50% p.a.
The above Interest rate is sustainably lower than LC backed
financing hence as agreed by you we are now mobilized the
funding on our own bank lines.
As per the agreed interest sharing mechanism below is the net
payable amount to you.
10.50% p.a.
interest
Company Basic Taxes WHT Net Payable 60% Interest Net payable to
Cost for 90 days Company
Petron 65,117,201 4,603,676 (3,248,341) 72,969,218 (1,889,203) 71,080,015
Engg
Petron 625,482,354 24,967,488 13,408,616 637,041,226 (16,493,259) 620,547,967
Civil
KSS- 721,825,443 133,335,785 55,419,499 799,741,729 (20,705,642) 779,036,087
(HMEL +
HMPL)
1,412,424,998 162,906,949 65,579,773 1,509,752,174 (39,088,104) 1,470,664,070
You are kindly requested to confirm the above
understanding, payable amount and send us the bank details to
effect the payment."
25. Mr Maheshwari responded to the aforesaid mail by an email sent on
the same day, which reads as under:-
"Interest calculation appears to be 100%. Please allocate
40 % to KSS & remit the net payable to respective Bank
accounts as already appearing in HMEL masters."
26. However, it appears that even prior to the receipt of the email sent by
Mr Maheshwari, Mr Abhinav Lodha of HMEL re-sent a modified statement,
calculating the interest cost payable at 40%. The said email reads as under:-
"Resending the calculation @ 40%
10.50% interest
Company Basic Taxes WHT Net Payable 40% Interest Net payable to
Cost Company
Petron 65,117,201 4,603,676 (3,248,341) 72,969,218 (755,681) 72,213,537
Engg
Petron 625,482,354 24,967,488 13,408,616 637,041,226 (6,597,304) 630,443,923
Civil
KSS- 721,825,443 133,335,785 55,419,499 799,741,729 (8,282,257) 791,459,473
(HMEL +
HMPL)
1,412,424,998 162,906,949 65,579,773 1,509,752,174 (15,635,242) 1,494,116,932
27. It is apparent from the above that HMEL had sought confirmation
regarding the computation of the amount payable to the petitioners and the
same was confirmed by Mr Maheshwari by his email dated 04.09.2012.
28. It is also not disputed that HMEL made payments in terms of the
statement as indicated in the above email (the basic payment being
₹1,41,24,24,998/-). Admittedly, no protest or reservation of any kind was
lodged or expressed for any short payment at the material time.
29. During the course of the arbitral proceedings, Mr Harak Banthia,
(Chief Finance Officer of the respondents) filed an affidavit inter alia
affirming as under:-
"10. I state that pursuant to the execution of the Settlement
Agreement, the payment was to be made as per a Letter of
Credit ("LC") and under the Settlement Agreement, the said
LC discounting charges had to be shared between the parties
in the ratio of 40:60 (being Claimant-40:Respondent-60).
However, after the execution of the Settlement Agreement,
Mr. Keswani approached me that since they were unable to
obtain competitive rates from banks in discounting Letter of
Credit, he requested me if we can approach the banks and
get Letter of Credit discounted at rates which was going to
be at better rates. As Chief Financial Officer, I was also
keen to save the said costs since it was going to benefit both
the Parties. Mr. Keswani confirmed to me that the
Claimant's cost was going to be around 15% p.a. Mr.
Keswani explained to me that banks were charging high
amounts to them due to their poor credit rating. I agreed that
this rate was very high and I was keen to accept this
proposal as we were also to share 60% of the said
discounting costs. The proposal was going to benefit the
Claimant's cost in terms of immediate payment and lower
charges and would also save the Respondent from the
exorbitant charges being offered to the Claimant's owing to
their credit rating. After receiving the proposal from Mr.
Keswani, I discussed the same with my treasury department
and sought their views on their interest rates. I was informed
by the treasury department that the said rates being offered
to the Claimants were indeed exorbitant and that it would be
prudent to make a direct payment to the Claimants as our
own financing/borrowing costs were then substantially
lower at around 10.50% p.a.
11. I state that after receiving of the said confirmation from
the treasury department, I immediately contacted Mr.
Keswani and offered that we can deduct their share of
discount @ 10.50% p.a. and I also mentioned that the
Respondent could even consider making a direct payment to
the Claimants instead of the Claimant's suffering the pain of
discounting the Letter of Credits etc. which as stated was
uncertain and exorbitant rates of around 15% as quoted by
the Claimant. I state that my proposal was immediately
accepted and even appreciated by Mr. Keswani and Mr.
Maheshwari. Several telephonic discussions in this regard
took place between me, my team and the Claimant's
representatives. Pursuant to our mutual agreement for the
same, it was agreed between both parties that certain other
deductions to be carried out from the Settlement Agreement
in light of the reduced charges, being borne by the
claimants, the direct payments being made to the Claimant
instead of payment by Letter of Credit etc. The same was
agreed by the Claimants and on the basis of our
understanding with Mr. Keswani and Mr. Maheshwari, the
revised amount so agreed was duly recorded in writing to
Mr. Maheshwari by members of my accounts team being
Mr. Abhinandan Lodha and Mr. Gourav Bhatia. I
categorically state that following various discussion
between me, my team on behalf of the Respondent and Mr.
Maheshwari and Mr. Keswani on behalf of the Claimants, I
specifically instructed my accounts team to send the figures
to the Claimant's for their written approval and only after
receiving the Claimant's written approval where final
revised amounts were mentioned, I authorized the payments
made on 4 September 2012."
30. Apparently, Mr Banthia was not cross-examined on the aspect of the
discussions as affirmed by him.
31. It is also relevant to note that after receipt of the amounts as indicated
above, the parties had entered into an Addendum to the Settlement
Agreement on 19.09.2012. Admittedly, the said Adddendum also did not
indicate that the Settlement Agreement had failed on account of any alleged
short payment; on the contrary, the petitioners had re-affirmed the
Settlement Agreement.
32. The arbitral tribunal considered the above evidence and material on
record and passed the impugned award (by majority) rejecting the
contention that the Settlement Agreement had to be treated as cancelled, for
several reasons. First, the arbitral tribunal noted that the amount of
₹1,41,24,24,998/- (as against the originally settled amount of
₹1,42,45,59,195/-) was paid pursuant to the discussions and agreement
between the parties as reflected in the emails and the shortfall of
₹1,21,34,197/- was a very small fraction of the amount paid.
33. Second, the arbitral tribunal noted that the records clearly indicate that
there were discussions between the parties and the exchange of emails
revealed that the petitioners had agreed and accepted deviation of the terms
of the Settlement Agreement not only in respect of the manner in which the
payments were to be made (from being paid via letter of credit to direct
payment) but also with regard to revision of the amounts payable under the
Settlement Agreement. The arbitral tribunal observed that the petitioners had
chosen not to cross-examine Mr Banthia with regard to his testimony and,
accordingly, accepted the evidence tendered by Mr Banthia that there were
discussions that had fructified into an understanding as affirmed by him.
34. Third, the arbitral tribunal also noted that the financing charges that
were payable by the petitioners pursuant to the change in the method of
payment were substantially lower than L/C backed financing and inferred
that the petitioners had agreed to receive a lower amount for the aforesaid
reason.
35. Fourth, the arbitral tribunal noted that there was no protest or
reservation expressed by the petitioners at the material time and they had
accepted the payments made; the allegation that there was a shortfall in the
payment was made at a much belated stage.
36. Lastly, the arbitral tribunal noted that the parties had entered into an
Addendum to the Settlement Agreement on 19.09.2012 which also indicated
that the parties were treating the Settlement Agreement as subsisting and
binding.
37. The findings of the arbitral tribunal cannot by any stretch be stated to
be perverse or patently illegal. The contention that the impugned award runs
contrary to the express terms of the Settlement Agreement is also
unpersuasive considering the finding of the arbitral tribunal that the parties
had agreed to deviate from the terms of the Settlement Agreement to the
extent of the manner and the amount payable. The arbitral tribunal found
that the amount payable was confirmed on behalf of the contractors as is
evident from the emails referred to above. These finding of facts by the
arbitral tribunal are final and cannot be interfered with unless such findings
are established to be perverse or patently illegal. This Court does not act as
an appellate court to re-examine and re-appreciate the evidence considered
by the arbitral tribunal and unless the finding/decision of the arbitral tribunal
is found to be perverse or wholly unsustainable in law, no interference with
the arbitral award is warranted.
38. It is also relevant to mention that Mr Chandhiok did not advance any
arguments in support of the view expressed by Mr K.K. Singal in his
dissenting note. He had stated at the outset that he was not defending the
said view. Thus, it is not necessary for this Court to express any view on Mr
Singal's dissenting note.
39. In view of the above, the present petition is dismissed. No order as to
costs.
VIBHU BAKHRU, J
APRIL 10, 2017
RK
