Delhi High Court
Steel Authority Of India Limited vs Jaldhi Overseas Pte Ltd on 31 May, 2021
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 31.05.2021
+ O.M.P. (COMM.) 169/2021 & IA Nos. 6071/2021 &
6073/2021
STEEL AUTHORITY OF INDIA LIMITED ..... Petitioner
versus
M/S JALDHI OVERSEAS PTE LTD. ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Joy Basu, Senior Advocate with Mr
Ashish Rana, Mr Kanak Bose, Advocates.
For the Respondent : Mr Ashwin Shankar and Mr Rishi
Murarka, Ms Shweta Sadanandan,
Mr Aditya Raj, Mr George Rebello,
Advocate.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. Steel Authority of India Limited (hereafter ‗SAIL') has filed the
present petition under Section 34 of the Arbitration and Conciliation
Signature Not Verified
by:DUSHYANT
RAWAL
Act, 1996 (hereafter the ‗A&C Act') impugning an arbitral award
dated 02.11.2020 (hereafter ‗the impugned award') delivered by the
Arbitral Tribunal comprising of three arbitrators [Justice (Retd.) V.K.
Gupta, former Chief Justice of Uttarakhand High Court, Sh. R.P.
Singh, Director (HR & Legal), IIFCO and Justice (Retd.) Madan B.
Lokur, former judge of the Supreme Court of India as the Presiding
Arbitrator].
2. The respondent (hereafter ‗JOPL') is a company incorporated in
Singapore and was the claimant before Arbitral Tribunal. SAIL is a
Public Sector Enterprise, inter alia, engaged in manufacture of steel.
The arbitration between the parties was an international commercial
arbitration within the meaning of Section 2(1)(f) of the A&C Act. It
was conducted under the aegis of Delhi International Arbitration
Centre (DIAC) and in accordance with its Rules.
3. JOPL is engaged in the business of maritime logistics including
vessel operations and chartering.
4. The disputes between the parties arose in connection with a
Contract of Affreightment dated 28.06.2017 (hereafter referred to as
‗the CoA'). In terms of the CoA, the parties had agreed that JOPL
would load, carry and discharge a cargo of 13,50,000 metric tons
(25% more or less at the option of SAIL) of limestone in lots of
50,000 metric tons (5% more or less at the option of SAIL) on terms
and conditions as stipulated. The cargo was to be loaded at Mina Saqr
Port in Ras Al Khaimah, UAE and was discharged at the ports of
Signature Not Verified
by:DUSHYANT
RAWAL
Vishakhapatnam/Gangavarnam/Paradip/Haldia. In terms of Clause 47
of the CoA, it was agreed that the freight payable to JOPL would be
USD 8.55 per metric ton on FIOT basis in case of discharge at the port
of Vishakhapatnam, Gangavarnam or Paradip and further, USD 1.75
per metric ton extra would be charged if the cargo was required to be
discharged at two ports. In terms of Clause 48 of the CoA, 90% of the
freight payment was required to be made initially on the Bill(s) of
Lading less 2% in lieu of weighment, within a period of seven
working days of the vessel and cargo's safe arrival at the first or sole
port of discharge. The balance 10% of the freight together with the
demurrage, or less dispatch, if any, was payable within a period of one
hundred and twenty days from the date of completion of the discharge
on submission of certain documents specified therein.
5. There is no substantial dispute as to the freight and charges
payable by SAIL to JOPL. There is a minor difference of USD
6,045.12 between the amounts as claimed by JOPL and the aggregate
of amounts acknowledged by SAIL as withheld from the freight/
demurrages payable to JOPL. According to JOPL, USD 444,741.79
was due and payable by SAIL in respect of the cargo transported and
discharged in terms of the CoA. However, according to SAIL, it has
withheld only a sum of USD 438,696.64 being the balance amount
payable to JOPL. The Arbitral Tribunal had noted that JOPL did not
press its claim for the amount of USD 6,045.12 and sought recovery of
the amount as admittedly withheld by SAIL.
Signature Not Verified
by:DUSHYANT
RAWAL
6. After the parties had entered into a CoA on 28.06.2017, SAIL
entered into a contract for supply of limestone with one Stevin Rock
(the Supplier) on 29.07.2017. JOPL transported the limestone supplied
by the Supplier to SAIL.
7. SAIL made its first declaration for laycan and called upon JOPL
to nominate a vessel on 27.09.2017
8. Essentially, the controversy amongst the parties relates to the
interpretation of Clause 74 of the CoA, which provided an option to
SAIL to suspend shipment for a holiday period not exceeding two
months and also to extend deliveries for a period of three months. In
terms of Clause 74, the shipments were likely to commence in July
2017 and be completed within twelve months subject to a shipment
holiday (limited to a maximum of two months) and extension of
delivery (subject to a maximum of three months). According to JOPL,
the term of the contract expired after a period of twelve months from
the date of execution of the CoA, that is, on 27.06.2018. However,
SAIL claims that the period of twelve months was required to be
reckoned from the declaration of the first laycan, which was made on
27.09.2017. SAIL claimed that in addition, it was also entitled to
extension on account of shipment holiday and extension of delivery.
9. JOPL accepted SAIL's request for nomination for laycan
between 25.06.2018 to 04.07.2018. However, by an email dated
13.06.2018 sent by the shipping broker (Globus Marine Services),
JOPL communicated to SAIL that the same would be the last
Signature Not Verified
by:DUSHYANT
RAWAL
shipment under the CoA and it would not extend the term of the CoA
any further. SAIL objected to the said email and sent an email on
14.06.2018 asserting that since the first shipment was intimated on
27.09.2017, the period of shipment under the CoA would continue for
a period of twelve months thereafter and, would expire sometime in
September 2018. This was not accepted by JOPL and by an email
dated 27.06.2018, it reiterated its stand that CoA had expired by efflux
of time on completion of the period of twelve months from 28.06.2017
- the date of execution of CoA. SAIL did not accept JOPL's stand
that the term of the CoA was twelve months from the date of
execution of the CoA. On 28.06.2018, SAIL sent an email invoking
the shipment holiday and also seeking extension of delivery period.
According to SAIL, the date of expiry of CoA would run beyond
September 2018 to January 2019. The stand of SAIL in the said email
is the heart of the disputes between the parties.
10. On 18.07.2018, SAIL sent an email requesting JOPL to
nominate their vessel for the 20th shipment of 50,000 metric tons
(plus/minus 5%) limestone for being loaded between 6.08.2018-
15.08.2018. The said request was not accepted by JOPL.
11. SAIL claims that JOPL has breached the terms of the CoA by
not accepting its request for nomination. SAIL claims that in the
circumstances, it was compelled to avail the services of other
charterers at the risk and cost of JOPL for shipping the goods in
question. SAIL claims that it incurred additional expenses to the
Signature Not Verified
by:DUSHYANT
RAWAL
extent of USD 11,87,847.318 on account of such shipments and raised
a counter claim against JOPL for the said amount.
12. SAIL claims that in view of the above, it had withheld the
amount of USD 444,741.79 payable under the CoA. In addition, it had
also withheld a sum aggregating USD 7,43,105.74, which was due to
JOPL in respect of other contracts.
The Impugned Award
13. In the context of the aforesaid disputes, the Arbitral Tribunal
framed the following issues for determination:
―(a) As per the contract of affreightment dated
28.06.2017, when did the period for shipment of
limestone in bulk commence and when was it
scheduled to end?
(b) Whether the Respondent correctly invoked the
procedure for shipment holiday and delivery
extension?
(c) Whether the Claimant is entitled to the amounts
claimed as per the statement of claim?
(d) Whether the Claimant breached the Contract of
Affreightment dated 28.06.2017 and if so, to what
effect?
(e) Whether the Respondent is entitled to the amounts
claimed as per the counter-claims?
(f) Whether the parties are entitled to any costs and if
so for what amount?
(g) What reliefs are the parties entitled to?‖
Signature Not Verified
by:DUSHYANT
RAWAL
14. The Arbitral Tribunal held that the CoA was undeniably a
commercial contract and the term of the CoA depended on the
interpretation of the words ―likely commencement in July 2017 and
completion in 12 months...‖ as used in Clause 74 of the CoA. The
Arbitral Tribunal held that the said words were required to be
interpreted as any reasonable commercially minded person would.
The Tribunal referred to the dictionary meaning of the word ―likely‖.
It also examined the emails sent by the shipping broker (Globus
Marine Services) to SAIL on 13.07.2017, 27.07.2017, 08.08.2017 and
17.08.2017, which in effect requested SAIL to advise the laycan for
the first shipment. SAIL was reminded that it had entered into the
CoA but had not yet intimated any laycan for the first shipment. The
Arbitral Tribunal held that the word ―likely‖ as used in the CoA was
required to be reasonably interpreted to mean that the first shipment
would take place in July 2017. The Arbitral Tribunal found that SAIL
had misunderstood its obligation under the CoA and therefore, laycan
for the first shipment was given by SAIL much later on 27.09.2017.
The Arbitral Tribunal observed that this was perhaps because SAIL
had entered into a contract for supply with Stevin Rock on 29.07.2017.
The Arbitral Tribunal noted that the total cargo to be shipped was
13,50,000 metric tons and it was to be shipped in batches of 50,000
metric tons subject to increase/decrease in quantity to the extent of
25%. It reasoned that in the event SAIL opted to increase the quantity,
then about 33 shipments would be required and in the event of its
exercising the option to reduce the quantity, the number of shipments
would reduce to 22. Such shipments were required to be made within
Signature Not Verified
by:DUSHYANT
RAWAL
a period of twelve months. The Arbitral Tribunal reasoned that given
the tight schedule, it would be difficult to accept that the word ―likely‖
as used in Clause 74 of the CoA was intended to provide SAIL a
flexibility of three months from July to September/October 2017 to
commence the first shipment. It did not accept SAIL's interpretation
of Clause 74 of the CoA that the period of twelve months would
commence with the first shipment and there was no restriction as to
when the first shipment could be made. The Tribunal held that the
word ―likely‖ was used as the date of shipment was not specified but it
was understood that the same would be in July 2017. And at best, the
words ―likely commencement in July‖ could be interpreted to give a
flexibility from 1st July 2017 to 31st July 2017. Accordingly, the
period of twelve months would come to an end latest by July 2018. To
the said extent, the Arbitral Tribunal did not accept JOPL's contention
that CoA came to an end on 27.06.2017, that is, on expiry of twelve
months from the date on which the parties had entered into the CoA.
15. The Arbitral Tribunal proceeded to examine SAIL's stand as
stated in its email dated 28.06.2018. In terms of the said
communication, SAIL declared a shipment holiday for a period of one
month of July 2018. In addition to the above, it extended the delivery
for a further period of three months thereafter; thereby, extending the
delivery schedule to January 2019.
16. The Arbitral Tribunal held that the said communication was not
in conformity with Clause 74 of the CoA, which required the
fulfillment of two conditions cumulatively. First, that the option could
Signature Not Verified
by:DUSHYANT
RAWAL
be exercised only once. Second, it was required to be exercised one
month prior to the declaration of the shipment holiday and SAIL was
obliged to intimate the shipping holiday at least one month prior to the
expiry of the agreed/extended delivery schedule. The Arbitral Tribunal
held that if SAIL wanted to declare July 2018 as a period of shipment
holiday, it was required to communicate the same to JOPL at least by
31.05.2018 or at the latest by 01.06.2018, which would be one month
prior to 01.07.2018. SAIL also contended that in the event its exercise
of declaring July 2018 as a shipment holiday was not accepted, its
decision to extend the delivery period by another three months ought
to be accepted. The Arbitral Tribunal rejected this contention as well,
as it found that the email dated 28.06.2018 did not exercise the option
of extending the delivery schedule on a standalone basis but the same
was dependent upon the shipment holiday declared in the month of
July 2018, which was not a valid exercise of the option.
17. The Arbitral Tribunal found that there was no breach on the part
of JOPL as the shipments were required to be completed within twelve
months of July 2017, that is, by July 2018. The loading of the last
shipment was completed on 06.07.2018 and it had reached Paradip
port on 22.07.2018, the port of Sagar on or about 05.08.2018 and the
Haldia port on or about 07.08.2018. The Tribunal found that there was
no request made by SAIL for any shipment in the month of July 2018.
JOPL's claim that it was not obliged to provide any vessel after
28.06.2018 was not accepted. But as SAIL did not make any request
for a shipment in the month of July, the Arbitral Tribunal held JOPL
Signature Not Verified
by:DUSHYANT
RAWAL
could not be held to have breached any of its obligations. The Tribunal
also noted that SAIL had not make any alternative arrangement for
shipment of the goods in question during the term of the CoA.
18. In view of the aforesaid finding, the Arbitral Tribunal rejected
SAIL's counter claim of damages for a sum of USD 11,87,847.53.
The Tribunal also noted that although it has alleged that JOPL had
breached the CoA on 13.06.2018 or 25.06.2018, however, SAIL had
called for tenders for the subsequent shipments between 09.08.2018
and 12.09.2018 and therefore, the tenders received were not at rates
prevailing on the crucial dates of alleged breach.
19. Accordingly, the Arbitral Tribunal awarded a sum of USD
438,696.64 (being the amount claimed in the statement of claim less
USD 6,045.12). Since the contract between the parties was a
commercial contract, the Arbitral Tribunal also awarded interest at the
rate of 12% per annum compounded with quarterly rests on the said
amount from the dates on which the amounts became due in terms of
the CoA. The counter claims made by SAIL were rejected. The
Arbitral Tribunal also awarded cost of the arbitration being the cost
deposited by JOPL with the DIAC.
Submissions
20. Mr. Basu, learned Senior Counsel appearing for SAIL, assailed
the impugned award on, essentially, four fronts. First, he submitted
that the Arbitral Tribunal had in effect re-written the contract.
According to him, the Arbitral Tribunal's interpretation of Clause 74
Signature Not Verified
by:DUSHYANT
RAWAL
of the CoA was plainly contrary to the plain terms of the contract. He
contended that foisting a contract in this manner was violative of the
fundamental policy of Indian law.
21. Second, he submitted that there was an intrinsic inconsistency
in the impugned award. The Arbitral Tribunal held that the first
shipment could be made any time between 1st July 2017 and 31st July
2017 and therefore, the term of the CoA would extend till 30.07.2017.
However, the Arbitral Tribunal had erroneously held that no request
had been made by SAIL during the month of July 2018. He submitted
that the Tribunal overlooked the email dated 18.07.2018, whereby
SAIL had requested JOPL to nominate a vessel for the 20 th shipment.
He contended that the finding of the Arbitral Tribunal that no such
request was made is therefore, patently erroneous and the impugned
award is liable to be set aside for the said reason.
22. Third, he submitted that JOPL had not led any evidence or filed
any affidavit in support of its claims and therefore, the impugned
award is based on no evidence. He stated that the claims were also not
properly instituted as the Statement of Claims was not signed by the
authorized officer of JOPL but by an advocate.
23. Fourth, he submitted that the Arbitral Tribunal had erred in
awarding interest at the rate of 12% per annum compounded with
quarterly rests. He submitted that the said interest was grossly
disproportionate and was unreasonable. He relied on the decision of
the Supreme Court in Vedanta Limited v. Shenzhen Shandong
Signature Not Verified
by:DUSHYANT
RAWAL
Nuclear Power Construction Company Limited: (2019) 11 SCC 465,
in support of his contention. He also referred to the decision of the
Supreme Court in State of Haryana and Ors. v. S.L. Arora and
Company: (2010) 3 SCC 690, in support of his contention that
compound interest could not be awarded by an arbitrator.
Reasons and Conclusion
24. As is apparent from the above, the principal controversy before
the Arbitral Tribunal was with regard to the interpretation of Clauses
73 and 74 of the CoA. Before proceeding further, it would be relevant
to refer to the said Clauses. The same are set out below:
―Clause 73. Total Cargo Quantity/Parcel Size:
1,350,000 metric tons with 25% more or less
Charterer's option Lime Stone in bulk. SAIL shall
intimate about two weeks in advance for Nomination of
the Vessel. Owners to nominate suitable tonnage within
two working days.
CARGO: LOW SILICA LIMESTONE
QUANTITY : SIZE 10-35 MM : 350,000 MT (+/-)
25% CHARTERERS OPTION
SHIPLOAD & SHIPPING TOLERANCE : 50,000 MT
(+/-) 5% OWNERS OPTION
QUANTITY : SIZE 30-60 MM : 1,000,000 MT (+/-)
25% CHARTERERS OPTION
SHIPLOAD & SHIPPING TOLERANCE : 50,000 MT
(+/-) 5% OWNERS OPTION
Signature Not Verified
by:DUSHYANT
RAWAL
Parcel size: 50,000mt 5 per more or less in Owner's
option in single decker self trimming type Handymax /
Supramax suitable for bulk discharge with self
discharging gears / cranes fitted with Grabs fully
automatic requiring no manual operation. Minimum 4
cranes preferably 30 mt (min 25 mt) Grab 12 GBM -
capable of discharging 10000 MT per day.
Clause 74. Shipment Period/Performing Vessels'
Nomination:
Likely commencement in July 2017 and completion in
12 months subject to shipment holiday (limited to
maximum 2 months) and delivery extension (limited to
maximum 3 months) at the option of the Charterer.
During the pendency of the contract, Charterer at its
option may declare a period of ―Shipment Holiday‖
maximum up to 2 (two) months deferring the shipments
to the subsequent months. This option may be exercised
only once and at least one month prior to the
declaration of the ‗‗Shipment Holiday‖ In case of
exercise of this option, the agreed delivery schedule
would be treated to be automatically extended by a
proportionate period (in months or part thereof).
Notwithstanding the provision of ―Shipment Holiday‖,
during the pendency of the contract, Charterer at its
option may also extend the agreed/auto-extended
delivery schedule further maximum up to 3 (three)
months deferring the shipments to the subsequent
months. This option may be exercised only once and at
least one month prior to the expiry of agreed/auto-
extended delivery schedule. In case of exercise of this
option, the delivery schedule would be treated to be
further extended automatically by a proportionate
period (in months or part thereof).
The above options, if at all exercised by the Charterer,
would be intimated to the Owner at least one month
Signature Not Verified
by:DUSHYANT
RAWAL
prior to the expiry of the agreed/extended delivery
schedule.
Actual performing vessel, in case substitution of vessel
is necessary, to be nominated 10 days prior to ETA
loadport subject to condition that there should not be
any change in the agreed laycan. Only one substitute is
allowed for each stem.
Charterers need minimum 2 working days for lifting
―subjects‖ for the nominated and performing vessel.
In case of failure to nominate the vessel(s) by the COA
holder in the laydays as required by Charterer's, the
Charterers reserve their right to nominate a suitable
vessel in the laycan at the risk and cost of the Contract
of Affreightment holder.
If the nominated vessel arrives (due to any reason
whatsoever) after the cancelling date and if the
charterers nevertheless do not cancel the nomination,
laytime will start from commencement of loading.‖
25. The dispute between the parties regarding the term of the CoA
revolve around the opening sentence of Clause 74 of the CoA.
Whereas SAIL contended that whilst it was agreed that shipment are
likely commence in July 2017, it was not necessary that the first
shipment be made during that month. According to SAIL, the first
shipment could be made any time after execution of the CoA and the
period of twelve months as agreed under Clause 74 of the CoA, would
commence on and from that date. Plainly, the controversy in this
regard, relates to interpretation of the words ―likely commencement in
July 2017‖. The Arbitral Tribunal was well within its jurisdiction to
interpret the said expression as used in Clause 74 of the CoA. It did so
Signature Not Verified
by:DUSHYANT
RAWAL
after taking into consideration several aspects. The Arbitral Tribunal
considered that CoA was a commercial contract and had to be
construed as any reasonable minded commercial person would.
Clearly, the said Clause could not be interpreted to be open ended,
leaving it open for SAIL to choose at its will when to make the first
shipment and JOPL would be bound down to the freight paid as
agreed under the CoA. The Arbitral Tribunal also evaluated the
correspondence sent at the instance of JOPL (four emails dated
13.07.2017, 27.07.2017, 08.08.2017 and 17.08.2017). The said emails
clearly evidenced the understanding that SAIL would request for
nomination of vessels for shipment immediately after the execution of
the CoA.
26. Next, the Arbitral Tribunal also examined the meaning of the
word ―likely‖. It then proceeded to interpret Clause 74 of the CoA to
mean that it was agreed that the first shipment would be made in the
month of July 2017 although the dates of the shipments were
unspecified.
27. The contention that this constitutes a re-writing of the contract
is an insubstantial argument. It is unmerited and is rejected as such.
28. This Court concurs with the view of the Arbitral Tribunal that
Clause 74 of the CoA can be reasonably interpreted to mean that the
shipments were agreed to commence in July 2017 and the said Clause
was not an open ended clause leaving it to the discretion of SAIL to
commence the shipments as and when it deemed fit. In any view, the
Signature Not Verified
by:DUSHYANT
RAWAL
said Clause cannot be interpreted to mean that the period of twelve
months could be extended indefinitely. Whilst, JOPL believed that the
CoA would commence on the date of its execution and the shipments
would be made thereafter. The Arbitral Tribunal took a reasonable
view and concluded that it was agreed that the shipments would
commence in July 2017 and the term of the CoA would extend for a
period of twelve months thereafter, that is, till July 2018.
29. Having stated the above, it is also necessary to observe that the
scope of challenge under Section 34 of the A&C Act is very limited.
Since the impugned award is culmination of an international
commercial arbitration within the meaning of Section 2(1)(f), it can be
challenged only on the grounds as set out under Section 34(2) of the
A&C Act. It has been reiterated in several decisions by the Supreme
Court that in proceedings under Section 34 of the A&C Act, the court
is not required to examine the award as a first appellate court to re-
appreciate evidence and the applicable law. An Arbitral award can be
set aside only if it is found that it violates the fundamental policy of
Indian law. Plainly, the Arbitral Tribunal's interpretation cannot by
any stretch be held to fall foul of any fundamental policy of Indian
law. The contention that Arbitral Tribunal's interpretation in effect re-
writes the CoA is, plainly, unsustainable.
30. Clause 74 of CoA entitled SAIL to extend the term of the CoA
on account of any shipment holiday up to a period of two months and
for extension of delivery for a period of three months. It was
Signature Not Verified
by:DUSHYANT
RAWAL
contended that the Arbitral Tribunal had erred in not accepting that
SAIL was entitled to claim benefit of such extension at its option.
31. At this stage, it would be relevant to refer to the email dated
28.06.2018 sent by SAIL seeking to exercise its right for declaring a
shipment holiday and for extension of delivery in terms of Clause 74
of the CoA. The said email is set out below:
―Subject: SAIL - JALDHI COA CP DTD 28/6/17:
LSLS SHIPMENTS FROM PORT OF
MINA SAQR, UAE TO ECI - Declaration
of Shipment Holiday and Extension in
Delivery Schedule.
Dear Sir,
As per clause 74 of the subject CoA, the following are
hereby declared:
1.0 Shipment Holiday:- Shipment Holiday for the
month of July 2018 i.e. one month is declared.
Therefore, the delivery schedule gets automatically
extended till October 2018.
Delivery Extension:- In addition to the above shipment
Holiday, the delivery is extended by further three
months for completing delivery of balance shipments.
Therefore, the delivery schedule gets extended
automatically till January 2019.
All other terms & conditions of the subject CoA
remain unchanged.
Regards
Jasmina
DGM (M-T&S)
Transport & Shipping HQ
Signature Not Verified
by:DUSHYANT
RAWAL
Steel Authority of India Ltd.‖
32. It is clear from the above that SAIL had sought the extension on
account of shipment holiday in the month of July 2018 and the
delivery extension for a period of three months in sequence thereof.
The Arbitral Tribunal had found that Clause 74 of the CoA entitled
SAIL to exercise the option for declaring a shipment holiday.
However, this option could be exercised only once and SAIL was
required to exercise this option at least one month prior to the
declaration of the shipment holiday. Clearly, in order to exercise an
option for a shipment holiday in July 2018, SAIL was required to
exercise its option one month prior to the first date of July 2018, that
is, latest by 31.05.2018. Thus, the notice exercising such option was
clearly not in terms of Clause 74 of the CoA and therefore, was
invalid. The Arbitral Tribunal's decision to the aforesaid effect cannot
be faulted.
33. Mr. Basu had contended that notwithstanding the above, the
Arbitral Tribunal should have considered SAIL's right for extension
of delivery period from July 2018. However, it is apparent that no
such extension was sought. As noticed by the Arbitral Tribunal, SAIL
had exercised its option of declaration of shipment holiday and
extension of delivery in a sequence. First, it declared July 2018 as a
period of shipment holiday followed by the extension of delivery.
Therefore, the exercise of option of extension of delivery could not be
read on a standalone basis. In any event, the same could not be
considered as an extension from July 2018. This option was also
Signature Not Verified
by:DUSHYANT
RAWAL
required to be exercised one month prior to the agreed/extended
delivery schedule. The contention that the impugned award can be
faulted on the aforesaid ground is, without any substance.
34. The contention that there is any inherent inconsistency in the
impugned award is also unmerited. Mr. Basu had drawn the attention
of this Court to paragraph 33 of the impugned award and pointed out
that the Arbitral Tribunal had held that ―At best, the words 'likely
commencement in July' can be interpreted to give a flexibility from 1 st
July to 31st July". He submitted that contrary to the aforesaid finding,
the Arbitral Tribunal had rejected SAIL's contention that JOPL had
breached the CoA on the incorrect assumption that no request had
been made for shipment in July 2018. He referred to the penultimate
sentence of paragraph 61 of the impugned award where the Arbitral
Tribunal had observed as under:
―There is nothing on record to suggest that the
Respondent asked for any other vessel to be made
available for shipments in the month of July 2018‖.
35. Mr. Basu contended that the said finding is ex facie erroneous
as by an email dated 18.07.2018, SAIL had requested for the
nomination of a vessel.
36. This contention too, is without any merit. A plain reading of
the email dated 18.07.2018 indicates that SAIL had requested for
nomination of vessel for its 20th shipment for laycan from 6th to 15th
August, 2018. Although SAIL had made the request in the month of
July 2018, it had not requested for any shipment in the month of July
Signature Not Verified
by:DUSHYANT
RAWAL
2018. The request was for a shipment in August 2018. Thus, the
finding that SAIL had not requested for shipment in the month of July
2018 is correct. A request made for shipment in August could not be
held to be within the period of 12 months from July 2017. The
Arbitral Tribunal had held that the term of the CoA extended for a
period of twelve month from the shipments in July. Thus, all
shipments were required to be made within the said period of twelve
months subject to SAIL's right for declaring a shipment holiday and
claiming an extension of delivery as agreed under Clause 74 of the
CoA.
37. The contention that the impugned award is based on no
evidence is also unpersuasive. JOPL was not required to lead any
evidence since its claim was accepted by SAIL. The burden of proof
to establish that JOPL had breached the CoA; SAIL had incurred a
loss as a consequence of such breach; and was entitled to recover the
same from JOPL, was required to be discharged by SAIL. As noticed
above, SAIL had set up a case of setoff and the same was contingent
on it establishing that the damages as claimed were payable by JOPL.
Since SAIL had failed to establish its claim, the award in favour of
JOPL would necessarily have to follow. The contention that the claim
was not properly instituted is an afterthought. No such defence was
urged by SAIL before the Arbitral Tribunal and SAIL cannot be
permitted to raise such pleas at this stage
Signature Not Verified
by:DUSHYANT
RAWAL
38. The next contention to be considered is whether the award of
interest at the rate of 12 percent per annum compounded with
quarterly rests falls foul of the fundamental policy of Indian law.
39. At the outset, it is necessary to observe that SAIL had not
contested JOPL's claim for interest on the ground that it was
unreasonable or excessive before the Arbitral Tribunal. The Statement
of Defence filed by SAIL indicates that it acknowledged that the
amount due to JOPL was withheld. It had filed a counter claim
seeking damages and claimed set-off against the amount admittedly
due to JOPL. It is material to note that SAIL did not specifically
dispute that the rate of interest as claimed by JOPL was excessive. The
para-wise reply to the Statement of Claims indicate that SAIL had
merely observed that paragraph 8 of the Statement of Claims recorded
the prayers made by JOPL. The prayers included a prayer for interest.
Concededly, no oral submissions were advanced before the Arbitral
Tribunal for contesting JOPL's claim for interest as being excessive or
disproportionate. It is also obvious that SAIL was in no position to
take this stand since SAIL had claimed 18% interest on the damages
quantified by it. Clearly, SAIL could not have disputed JOPL's claim
for interest as excessive while at the same time pursuing its claim for
interest at the rate of 18% per annum.
40. In the circumstances, this Court is of the view that it would be
inapposite to now allow SAIL to urge this contention, which is clearly
an afterthought.
Signature Not Verified
by:DUSHYANT
RAWAL
41. In view of the above, this court is not required to examine
SAIL's challenge to award of interest. But for the sake of
completeness this court considers it apposite to do so.
42. This Court is also unable to accept that award of interest at the
rate of 12% per annum with three monthly rests falls foul of the
fundamental policy of Indian law.
43. In Ssangyong Engineering & Construction Co. Limited v.
NHAI: (2019) 15 SCC 131, the Supreme Court had explained that the
expression ―fundamental policy of Indian law‖ would necessarily have
to be understood as explained in paragraphs 18 and 27 of its decision
in Associate Builders v. Delhi Development Authority: (2015) 3 SCC
49 and, its earlier decision in Renusagar Power Co Ltd. V. General
Electric Co: 1994 Supp (1) SCC 644. Paragraph 34, 35 and 36 of the
said decision are set out below:
―34. What is clear, therefore, is that the expression
―public policy of India‖, whether contained in Section 34
or in Section 48, would now mean the ―fundamental
policy of Indian law‖ as explained in paras 18 and 27 of
Associate Builders [Associate Builders v. DDA, (2015)
3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the fundamental
policy of Indian law would be relegated to ―Renusagar‖
understanding of this expression. This would necessarily
mean that Western Geco [ONGC v. Western Geco
International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC
(Civ) 12] expansion has been done away with. In short,
Western Geco [ONGC v. Western Geco International
Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as
explained in paras 28 and 29 of Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2
Signature Not Verified
by:DUSHYANT
RAWAL
SCC (Civ) 204] , would no longer obtain, as under the
guise of interfering with an award on the ground that the
arbitrator has not adopted a judicial approach, the Court's
intervention would be on the merits of the award, which
cannot be permitted post amendment. However, insofar
as principles of natural justice are concerned, as
contained in Sections 18 and 34(2)(a)(iii) of the 1996
Act, these continue to be grounds of challenge of an
award, as is contained in para 30 of Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2
SCC (Civ) 204] .
35. It is important to notice that the ground for
interference insofar as it concerns ―interest of India‖ has
since been deleted, and therefore, no longer obtains.
Equally, the ground for interference on the basis that the
award is in conflict with justice or morality is now to be
understood as a conflict with the ―most basic notions of
morality or justice‖. This again would be in line with
paras 36 to 39 of Associate Builders [Associate Builders
v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , as
it is only such arbitral awards that shock the conscience
of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now
constricted to mean firstly, that a domestic award is
contrary to the fundamental policy of Indian law, as
understood in paras 18 and 27 of Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2
SCC (Civ) 204] , or secondly, that such award is against
basic notions of justice or morality as understood in
paras 36 to 39 of Associate Builders [Associate Builders
v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
Explanation 2 to Section 34(2)(b)(ii) and Explanation 2
to Section 48(2)(b)(ii) was added by the Amendment Act
only so that Western Geco [ONGC v. Western Geco
International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC
(Civ) 12] , as understood in Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2
Signature Not Verified
by:DUSHYANT
RAWAL
SCC (Civ) 204] , and paras 28 and 29 in particular, is
now done away with.‖
44. Paragraphs 18 and 27 of the decision in Associate Builders v.
Delhi Development Authority (supra) are set out below:
18. In Renusagar Power Co. Ltd. v. General Electric
Co. [Renusagar Power Co. Ltd. v. General Electric Co.,
1994 Supp (1) SCC 644] , the Supreme Court construed
Section 7(1)(b)(ii) of the Foreign Awards (Recognition and
Enforcement) Act, 1961:
―7. Conditions for enforcement of foreign awards.--
(1) A foreign award may not be enforced under this
Act--
***
(b) if the Court dealing with the case is satisfied that--
***
(ii) the enforcement of the award will be contrary to
the public policy.‖
In construing the expression ―public policy‖ in the context
of a foreign award, the Court held that an award contrary
to
(i) The fundamental policy of Indian law,
(ii) The interest of India,
(iii) Justice or morality,
would be set aside on the ground that it would be contrary
to the public policy of India. It went on further to hold that
a contravention of the provisions of the Foreign Exchange
Regulation Act would be contrary to the public policy of
India in that the statute is enacted for the national
Signature Not Verified
by:DUSHYANT
RAWAL
economic interest to ensure that the nation does not lose
foreign exchange which is essential for the economic
survival of the nation (see SCC p. 685, para 75). Equally,
disregarding orders passed by the superior courts in India
could also be a contravention of the fundamental policy of
Indian law, but the recovery of compound interest on
interest, being contrary to statute only, would not
contravene any fundamental policy of Indian law (see SCC
pp. 689 & 693, paras 85 & 95).
27. Coming to each of the heads contained in Saw
Pipes [(2003) 5 SCC 705 : AIR 2003 SC 2629] judgment,
we will first deal with the head ―fundamental policy of
Indian law‖. It has already been seen
from Renusagar [Renusagar Power Co. Ltd. v. General
Electric Co., 1994 Supp (1) SCC 644] judgment that
violation of the Foreign Exchange Act and disregarding
orders of superior courts in India would be regarded as
being contrary to the fundamental policy of Indian law. To
this it could be added that the binding effect of the
judgment of a superior court being disregarded would be
equally violative of the fundamental policy of Indian law.
[ underlined for emphasis]
45. In view of the above decision, the contention that the award of
12% compound interest violates the fundamental policy of Indian law,
cannot be accepted. Mr. Shankar had also pointed out that there are
several legislations which provide for compound interest. In particular,
he had referred to Section 16 of the Micro, Small and Medium
Development Act, 2006, which specifically provides for payment of
compound interest with monthly rests at three times the bank rate as
notified by the Reserve Bank of India. In cases, where the contract,
common trade practice, or statute contemplates payment of interest on
Signature Not Verified
by:DUSHYANT
RAWAL
compound basis, the same is required to be paid. Thus, per se,
compound interest cannot be held to be falling foul of the fundamental
policy of Indian law.
46. The reliance placed by Mr. Basu on the decision of the
Supreme Court in Vedanta Limited (supra) also does not carry SAIL's
case any further. In the said case, the Supreme Court had examined an
arbitral award where the arbitrators had awarded a uniform rate of
interest on all the components of the award, which were in different
currencies. Thus, the uniform rate of interest had been awarded on a
component of the award, which was in Indian currency as well as the
component of the award, which was in Euros. It is in the aforesaid
context; it was necessary to take into account the currencies in which
the parties operate for awarding interests. The said decision cannot be
considered as an authority for the proposition that award of 12%
percent compound interest with quarterly rests on an award made in
foreign currency violates the fundamental policy of Indian law.
47. The decision of the Supreme Court in State of Haryana and
Ors. v. S.L. Arora and Company (supra) is also of little assistance to
SAIL. The said decision was overruled by the Supreme Court in a
later decision in Hyder Consulting (UK) Limited v. Governor, State
of Orissa: (2015) 2 SCC 189. The issue involved in Hyder Consulting
(UK) Limited's (supra) case was whether the post-award interest
could be awarded on pendente lite and pre-award interest which
formed a part of the arbitral award. Paragraph 21 of the said decision
reads as under:
Signature Not Verified
by:DUSHYANT
RAWAL
―21. In the result, I am of the view that S.L. Arora
case [State of Haryana v. S.L. Arora and Co., (2010)
3 SCC 690 : (2010) 1 SCC (Civ) 823] is wrongly
decided in that it holds that a sum directed to be paid
by an Arbitral Tribunal and the reference to the award
on the substantive claim does not refer to interest
pendente lite awarded on the ―sum directed to be paid
upon award‖ and that in the absence of any provision
of interest upon interest in the contract, the Arbitral
Tribunal does not have the power to award interest
upon interest, or compound interest either for the pre-
award period or for the post-award period. Parliament
has the undoubted power to legislate on the subject
and provide that the Arbitral Tribunal may award
interest on the sum directed to be paid by the award,
meaning a sum inclusive of principal sum adjudged
and the interest, and this has been done by Parliament
in plain language.
48. The said decision cannot be read in a restrictive manner. It is
also relevant to note that in this case, the Arbitral Tribunal had held
that the contract between the parties was a commercial contract. In
commercial contracts, interest to be awarded must be considered
keeping in view the commercial practice. Indisputably, it is common
practice for banks to charge compound interest on monthly or
quarterly rests. Thus, awarding compound interest in respect of sums
found payable under a commercial contract cannot be held to be
contrary to the fundamental policy of Indian law.
49. In Renusagar Power Co. Ltd. v. General Electric Co., 1994
Supp (1) SCC 644, the Hon'ble Supreme Court held as under:
―It is common knowledge that provision is made for
compound interest in contracts for loans advanced by
Signature Not Verified
by:DUSHYANT
RAWAL
banks and financial institutions and the said contracts
are enforced by courts. Hence, it cannot be said that
the award of interest on interest is against the public
policy of India We are, therefore, unable to accept the
contention that award of interest on interest, i.e.,
compound interest is contrary to public policy of
India..‖
50. As observed earlier, the Supreme Court in the case of
Ssangyong Engineering and Construction Co. Ltd. (supra) had
expressly confirmed that the grounds on which an award can be set
aside would be limited to those as expressed in paragraph 18 and
paragraph 27 of its decision in Associate Builders v. Delhi
Development Authority (supra). Paragraph 18 of the said decision
expressly indicates that recovery of compound interest would not
contravene any fundamental policy of Indian law.
51. Before concluding, it is also necessary to note that during the
course of arguments, Mr. Shankar had stated that if SAIL was willing
to pay the awarded amount with a lesser interest (say 6% instead of
12%) and put a quietus to the disputes, JOPL would accept the same
and waive its right for receiving the balance interest.
52. In view of the above offer, this Court had adjourned the hearing
to enable the counsel appearing for SAIL to take instructions in this
regard. Mr. Basu had subsequently informed this Court that he was
instructed to state that the said offer is not acceptable to SAIL.
Nonetheless, considering that public funds are involved, this Court
considers it apposite to grant SAIL another opportunity to reflect on
the offer made on behalf of JOPL and binds down JOPL to the offer
Signature Not Verified
by:DUSHYANT
RAWAL
made on its behalf for a further period of four weeks. In the event,
SAIL pays the amount of USD 438,696.64 along with 6% interest per
annum on a compounded basis with three monthly rests from the dates
on which such amounts became due in terms of the CoA, that is within
120 days of discharge of the cargo, till the date of payment, within a
period of four weeks from date, JOPL would accept the same as full
and final settlement of its claims.
53. The petition is dismissed with the aforesaid observations. All
pending applications are also disposed of.
VIBHU BAKHRU, J
MAY 31, 2021
RK
Signature Not Verified
by:DUSHYANT
RAWAL
