Delhi High Court
Flovel Hydro Technologies Pvt Ltd & Anr vs Mecamidi S A on 15 July, 2024
Author: Vibhu Bakhru
Bench: Vibhu Bakhru
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Pronounced on: 15.07.2024
+ FAO(OS) (COMM) 202/2019
FLOVEL HYDRO TECHNOLOGIES PVT LTD & ANR ..... Appellants
versus
MECAMIDI S A ..... Respondent
+ FAO(OS) (COMM) 263/2019 & CM Appls.40595/2022,
3974/2024, 3975/2024 and 3874/2024
MECAMIDI S A ..... Appellant
versus
FLOVEL HYDRO TECHNOLOGIES PVT LTD & ANR ..... Respondents
Advocates who appeared in this case:
For Flovel Hydro Technologies
Pvt. Ltd. & Anr. : Mr. Anirudh Wadhwa, Mr. Kanishk
Garg & Mr. Anirudh Agarwal,
Advs.
For Mecamidi S.A. : Ms. Ramni Taneja, Adv.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
HON'BLE MS. JUSTICE TARA VITASTA GANJU
JUDGMENT
TARA VITASTA GANJU, J.:
TABLE OF CONTENTS
Preface........................................................................ 2
Brief Facts................................................................... 3
Impugned Judgment....................................................... .5
Deposit........................................................................7
Contentions of Flovel............................................................7
Contentions of Mecamidi...................................................... 11
Analysis & Findings .................................................................14
Findings on Claims of Flovel.............................................16
Findings on Counter-Claims of Mecamidi..............................29
Conclusion...................................................................34
Preface
1. This judgment decides two separate appeals filed by both the
parties before this Court under Section 37 of the Arbitration and
Conciliation Act, 1996 [hereinafter referred to as the 'Arbitration
Act'] against a judgement dated 30.07.2019 passed by the learned
Single Judge of this Court in O.M.P. (COMM) 228/2017)
[hereinafter referred to as the 'Impugned Judgement'].
2. By the Impugned Judgment, the learned Single Judge partly
allowed the petition filed by Mecamidi S.A [hereinafter referred to
as 'Mecamidi'] under Section 34 of the Arbitration Act challenging
an Arbitral Award dated 22.12.2016 passed by the Arbitral Tribunal
[hereinafter referred to as the 'Award']. The Impugned Judgment
has also been challenged by Flovel Hydro Technologies Pvt Ltd
[hereinafter referred to as 'Flovel'].
2.1 During arguments before this Court, it was contended by learned
Counsel for Flovel that Mecamidi had gone into liquidation and
hence, the right to represent Mecamidi by learned Counsel who was
appearing for the erstwhile management of the company was
questioned. Learned Counsel for Mecamidi clarified that under
French Law, an erstwhile Chairman and Director can continue legal
proceedings even after a liquidator is appointed.
3. This Court, by its Order dated 22.01.2024, clarified that since the
scope of challenge is a limited one, without going into the
abovementioned objection, it will hear the appeals on merits.
Brief Facts
4. On 22.03.2007, Mecamidi, a global supplier of electro-mechanical
equipment for small and average hydro power plants, entered into
a Joint Venture Shareholders Agreement [hereinafter referred to as
'JVSA'] with Flovel to market, design, manufacture, install, and
service hydropower equipment in India. The JVSA envisaged an
equal equity participation in Flovel Energy Private Limited
[hereinafter referred to as 'the Venture Company'] by Mecamidi
and Flovel. The JVSA also set out that the Venture Company shall
be called 'Flovel Mecamidi Energy Private Limited'.
5. The JVSA required Mecamidi to invest Rs. 2.50 crores in two
instalments: Rs.1.1 crores within 15 days of date of execution of
the JVSA and Rs.1.4 crores (Rs. 60 lakhs to Venture Company
and Rs. 80 lakhs to Flovel) within 180 days of date of the JVSA.
Subsequently, the parties entered into a Supplementary JVSA
executed on 12.06.2007 [hereinafter referred to as 'supplementary
JVSA'], extending the deadlines for payment of these instalments.
Thus, the first instalment was to be made by 27.06.2007, and
second instalment by 11.12.2007.
5.1 Mecamidi paid the first instalment belatedly, which was accepted
by Flovel. On 22.09.2007, four additional agreements were
executed between the parties:
(i) Name Protection Agreement - Mecamidi;
(ii) Name Protection Agreement - Flovel;
(iii) Technical Know-How License Agreement; and
(iv) Trademarks License User Agreement.
6. Mecamidi failed to pay the second instalment of Rs.1.4 crores by
11.12.2007. Instead, Mecamidi sent Euros 94,968.60 on
18.08.2008, which was held by Flovel until 13.02.2009, when it
was returned. In the meanwhile, negotiations for rescheduling
payments did not culminate in a new contract between the parties.
7. Disputes arose when the Venture Company sought to increase its
paid-up capital, leading to Mecamidi filing a petition alleging
oppression and mismanagement of the Venture Company before
the Company Law Board [hereinafter referred to as 'CLB']. On
27.03.2009, the CLB passed an order which stayed the increase in
the paid-up capital of the Venture Company.
8. On 22.08.2009, Mecamidi terminated the JVSA and related
agreements, citing reasons such as exorbitant share prices,
attempts to dilute shareholding, and breaches of Articles of
Association. Flovel disputed the termination and invoked the
arbitration clause in the JVSA on 21.06.2010.
9. On 05.07.2010, the CLB recorded that Mecamidi was willing to
exit from the Venture Company on a fair valuation. After some
litigation between the parties, on 11.11.2010, the Venture
Company was renamed Flovel Energy Pvt Ltd and Mecamidi
exited from the Venture Company, selling its shareholding to
Flovel on 20.04.2012.
10. An Arbitral Tribunal was constituted pursuant to which Flovel
filed its Statement of Claim [hereinafter referred to as 'SOC']
inter-alia claiming compensation for breach of contract and
financial obligations under the JVSA and damages as follows:
(i) Damages on account of loss of profits;
(ii) Future reputation and goodwill;
(iii) Breach of clauses of the JVSA; and
(iv) Pendente lite and future interest at the rate of 24% per
annum.
11. Mecamidi also filed its counter-claims which included claims for
damages on Flovel's continued use of the name "MECAMIDI"
after termination of the JVSA; misrepresentation to customers
about Mecamidi's association with Venture Company, and breach
of the Technical Know-How License Agreement by using
Mecamidi's proprietary information in bids and loss of reputation
and goodwill along with pendente lite interest and costs.
12. By an Award dated 22.12.2016, the Arbitral Tribunal held that
Mecamidi had committed a breach of its obligations under the
JVSA, and that it failed to fulfil its financial obligations under the
JVSA and awarded Rs. 1.5 crores as damages to Flovel along with
interest at the rate of 12% per annum from the date of the Award
to the date of actual payment. The Award however, dismissed all
counter-claims of Mecamidi.
Impugned Judgement
13. The learned Single Judge by the Impugned Judgment upheld the
Arbitral Tribunal's findings that Mecamidi breached the JVSA by
failing to make payment of the second instalment within 180 days
of supplementary JVSA. It further held that Flovel, by its conduct
condoned the delay in making the payment of first instalment,
however, merely because the first instalment was accepted, the
subsequent delay for the second instalment was not condoned. The
learned Single Judge rejected Mecamidi's argument that the
parties' negotiations after the deadline amounted to a new contract
overriding the breach. The learned Single Judge observed that
mere negotiations not culminating into a new concluded contract
cannot undo a breach already committed.
14. Thus, the learned Single Judge set aside the Tribunal's Award of
Rs. 1.5 crore as damages, citing a lack of reasoning and evidence
behind this figure, rendering it in contravention of Section 73 of
the Indian Contract Act, 1872 [hereinafter referred to as 'Contract
Act'] and settled legal principles. It was held that damages cannot
be awarded arbitrarily without a claimant providing some material
evidence of the actual loss suffered due to the breach. The learned
Single Judge set out the Tribunal's observation in paragraph 40
onwards of the Award that, Flovel failed to produce evidence of
the financial gains they would have made if the contract was duly
performed, or the extent of loss caused by the breach. Awarding a
substantial sum of Rs. 1.5 crore by merely terming it as
"reasonable" without any rationale or basis was found to be
impermissible. The learned Single Judge also rejected Flovel's
reliance on precedents allowing guesswork in awarding damages
and held that the amount of Rs. 1.5 crores awarded, could not be
said to be a 'token amount' when the contract itself was valued at
Rs. 2.50 crores.
15. On Mecamidi's counter-claims related to use of "MECAMIDI"
name and technical know-how by Flovel after termination, the
learned Single Judge upheld the Tribunal's rejection, agreeing with
its reasoning. It was held by the learned Single Judge that the
Arbitral Tribunal had rightly observed that Mecamidi did not
show any intention to actually exit the Venture Company till
05.07.2010 and therefore, no loss of goodwill or reputation could
be attributed before that date. In addition, it held that Mecamidi
failed to provide any documentary evidence to prove Flovel's use
of know-how for specific projects after termination, and was
relying on the damages claimed based on projected hypothetical
calculations of share of profits rather than substantiated proof of
actual loss. Hence, the learned Single Judge found no infirmity in
the Tribunal's rejection of these counter-claims.
Deposit
16. A Coordinate Bench of this Court by its order dated 07.11.2019
passed in both Appeals, has recorded that a sum of USD 147,610/-
converted to Rs. 1,07,90,855/- and Rs. 96 lacs was deposited by
Flovel with the Registry of this Court. The deposit was converted
into a fixed deposit receipt and was directed to be renewed by the
Registry from time to time, till the disposal of the present appeals.
Contentions of Flovel
17. At the outset, learned Counsel for Flovel raised a preliminary
objection with regard to the representation of Mecamidi before
this Court. It was contended that Mecamidi, a French company, is
now under liquidation and, therefore, it is now required to be
represented by the liquidator and not its erstwhile
directors/management. It was contended that the Counsel
representing Mecamidi has been authorised by the erstwhile
Chairman and not by the Official Liquidator. It was further
contended that this issue was agitated by Flovel before the
National Company Law Tribunal [hereinafter referred to as
"NCLT"] as well, in the inter-se litigation between the parties.
Citing the principle of "issue estoppel", learned Counsel for Flovel
has contended that Mecamidi cannot be permitted to re-agitate this
issue before this Court. Reliance was placed on the judgment of
the Supreme Court in Hope Plantations Ltd. v. Taluk Land
Board1.
17.1 Learned Counsel for Flovel has further contended that since by its
order dated 22.01.2024, the Court has not gone into question as to
whether the erstwhile management can continue to represent
Mecamidi but has heard the appeal on merits, the question of
return of monies which stands deposited in this Court by Flovel,
could become an issue.
17.2 It was contended on behalf of Flovel that the Impugned Judgment
wrongly set aside, the Award of Rs. 1.5 crores in favour of Flovel
as being without any evidence. The basis for Claim no. 1 of Flovel
in the SOC filed before the Arbitral Tribunal was breach of
obligation for payment of "share subscription money" by
Mecamidi under Clause 2 of the JVSA, while the basis for Claim
no. 2 of Flovel in the SOC was a breach of the financial
(1999) 5 SCC 590
obligations of Mecamidi under Clause 19 of the JVSA. Both these
Claims were independent and distinct. The Arbitral Tribunal
found Mecamidi to be in breach of its obligations in the Award
thus, as a direct and natural consequence of this breach, Flovel
suffered losses, and claims in this regard were made by Flovel as
part of Claim no. 2 of the SOC.
17.3 Learned Counsel contended that Claim no. 2 of the SOC of Flovel
for an amount of Rs.4,32,97,948.36/-, was based on the following
table which formed part of its SOC as well:
S. No. DESCRIPTION AMOUNT CLAIMED
1 Interest @13% on the unsecured loan of Rs. 46,43,493/-
Rupees 12.5 million (Rs.1.25 crore) to be
brought in by the Mecamidi in the Venture
Company with effect from 08.08.2008 to
31.03.2011 as such Loan Agreement was
initialed [sic:initiated] by the Mecamidi on
08.08.2008 and was never given by to the
Venture Company for the purpose of
purchase of capital equipment. As a direct
result whereof, the Venture Company had
to make the payment to the foreign supplier
by availing finances of the Lenders by
paying interest.
2 Deed of Indemnity was to be executed by Rs. 1,80,67,654.69/-
the Mecamidi in favour of the Venture
Company, Mr. Maharaj Kar and Mr.
Gautam Kar for 50% value of the personal
guarantees furnished by them to the
Lenders. Such Deed of Indemnity was
initialed between the Mecamidi and the
Flovel on 08.08.2008. Amount claimed by
the Flovel is the amount equivalent to 50%
of 2.47% per annum of the net worth of Rs.
22.58 crores of the Flovel and its promoter
Director for the period 08.08.2008 to
31.03.2011.
3 Interest @ 13% on the Bank Guarantee Rs. 83,58,287.67/-
amount equivalent to Rs. 22.5 Million
(Rs.2.25 crore) to be furnished by the
Mecamidi for 50% value of the collateral
security furnished by Mr. Maharaj Kar
amounting to Rs.45 million was to be
furnished by the Mecamidi in favour of Mr.
Maharaj Kar.
4 Amount claimed by Venture Company Rs. 1,22,28,513/-
towards the amount forfeited by Bank of
India (the processing fees amounting to Rs.
5,97,850.00 & Rs. 31,49,323.00 paid by the
Venture Company to Bank of India and the
amount Rs. 30,00,000.00 paid by the
Venture Company to Bank of India as
prepayment charges and a further sum of
Rs. 49,63,500.00 as processing charges and
Rs.5,17,840.00 as counter bank guarantee
charge paid to M/s. ICICI Bank.)
TOTAL Rs. 4,32,97,948.36/-
Out of the amount of Rs.4,32,97,948.36/-, a total of
Rs.1,68,72,006/- was based on documentary evidence on record.
Thus, the Arbitral Tribunal, instead of allowing, Rs. 1,68,72,006/-,
allowed Rs, 1,50,00,000, as a lump sum amount, as being
reasonable and based on a wholistic view of the evidence.
17.4 It is submitted by Flovel, in light of the judgment in the case of
Ssangyong Engineering & Construction Co. Ltd. v. National
Highways Authority of India2, the underlying arbitration between
the parties was an "international commercial arbitration" in terms
of Section 2(1)(f) of the Arbitration Act, the only ground available
for interference with such an arbitral Award was if it were in
(2019) 15 SCC 131
conflict with the "public policy of India". The ground of 'patent
illegality' under Section 34 (2A) of the Arbitration Act, to set
aside the Award, was not available. Additionally, it was averred
that it is settled law that an Arbitral Tribunal is the master of the
quality and quantity of evidence and a finding of fact reached by
an Arbitral Tribunal, as long as the view taken is a 'possible'
view, it is not capable of being interfered with by the Courts, as
has been held in the judgement of the Supreme Court in Associate
Builders v. Delhi Development Authority3. Thus, the learned
Single Judge should not have interfered with the Award.
17.5 It was further contended by Flovel that an estimate of damages on
the basis of guesswork or "guess-timation" in assessing the
damages is within the jurisdiction of the Arbitral Tribunal and as
such incapable of being interfered with. Reliance was placed DDA
v. Anand & Associates4 and Mohan Lal v. UOI5.
17.6 Lastly, it was contended that the Impugned Judgment correctly did
not interfere with the rejection of the counter-claims of Mecamidi
and the Award of costs in the sum of Rs. 20 lakhs in favour of
Flovel.
Contentions of Mecamidi
18. Learned Counsel appearing on behalf of Mecamidi has contended
that the objection taken by Flovel, that the erstwhile Chairman has
no authority to represent Mecamidi in these proceedings before
(2015) 3 SCC 49
(2008) 151 DLT 18 (DB)
2010 SCC OnLine Del 699
this Court as company is in liquidation, is misconceived. Relying
on two legal opinions given by Advocates practicing in France,
Mr. Bruno Lefebvre and Mr. Benjamin Honig and an extract from
the Register of Commerce and Companies issued by the Registrar
in Paris, it is contended that under French Law, Mr. Jean Zekri
continues to remain as the Chairman of Mecamidi during the
liquidation process and that Mecamidi continues in existence.
Since, Mecamidi is governed by French Law, its proceedings in
respect of liquidation are also governed by French Law and not
Indian Law.
18.1 Learned Counsel for Mecamidi has submitted that the Arbitral
Tribunal found that Flovel had failed to produce any evidence to
show the loss suffered by it and that it was also under a duty to
mitigate its losses which was not done by Flovel. Challenging this
finding, it is contended that despite there being no evidence on
record, the Arbitral Tribunal's Award of Rs. 1.5 crores and interest
to Flovel was incorrect and impermissible in law and that the
learned Single Judge has rightly set aside such Award and the
interest accrued thereon.
18.2 It has been contended by learned Counsel for Mecamidi that
Mecamidi is aggrieved by the dismissal of all its counter-claims
and the finding of the learned Single Judge that it had committed
breach of the JVSA. In addition, Mecamidi is aggrieved by the
learned Single Judge's order upholding the order of costs in the
sum of Rs. 20 lakhs in favour of Flovel.
18.3 Learned Counsel for Mecamidi relied on the judgment of the
National Agricultural Cooperative Marketing Federation of
India (NAFED) v. Alimenta SA6, concerning the interpretation of
the concept of public policy in the context of a foreign award. In
the NAFED case, the Supreme Court while relying on the ratio of
the decision in the Ssangyong case, held that the learned Single
Judge has disregarded the legal position that the impugned Award
is against public policy and is also against the fundamental policy
of Indian law and against the basic concept of justice.
18.4 It is further contended that Flovel in the present Appeal is
requesting this Court to re-appreciate the 'purported' evidence
filed by it in the Arbitral Tribunal which is impermissible in law.
If this Court is persuaded to re-appreciate the evidence as is
sought to be done by Flovel, then, it should re-appreciate the
copious evidence that has been filed by Mecamidi in support of its
counter-claims, all of which have been rejected by the Arbitral
Tribunal and also by the learned Single Judge.
18.5 Lastly, Mecamidi contends that the guesswork or concept of
"guess-timation" has been misapplied by Flovel to justify its claim
for damages. It is contended that the Supreme Court in the case of
Trishala Jain and another v. State of Uttaranchal and Anr.7 has
explained the meaning of "guess-timation" and held that discretion
of the Court in applying guesswork to the facts of a given case, is
not unfettered, but has to be reasonable and should have a
2020 19 SCC 260
(2011) 6 SCC 47
connection to the data on record produced by the parties by way of
evidence. This concept is inapplicable to the present case as the
Arbitral Tribunal itself has ruled that Flovel did not produce any
evidence. Thus, it is contended the principle of "guess-timation"
has no applicability in the present case.
Analysis & Findings
19. As stated above, the Impugned Award was rendered in an
international commercial arbitration as defined under Section
2(1)(f) of the Arbitration Act since Mecamidi is an entity
incorporated overseas. The Award passed in an international
commercial arbitration has a limited scope of challenge under
Section 34 of the Arbitration Act, such an Award cannot be
interfered with or set aside on the ground of patent illegality as is
set forth under Section 34(2A) of the Arbitration Act. The grounds
for challenge available for an Award passed in an international
commercial arbitration are as set out in Section 34(2) of the
Arbitration Act. Section 34(2)(b)(ii) of the Arbitration Act sets out
that an award may be set aside where the Court finds that such
award is in conflict with the "public policy of India".
20. The explanation to Section 34(2)(b) of the Arbitration Act defines
conflict with the "public policy of India" as follows:
"34. Application for setting aside arbitral award -
(1) ......
(2) An arbitral award may be set aside by the Court only if -
(a)......
(b) the Court finds that -
(i) the subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1 - For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if -
(i) the making of the award was induced or affected by
fraud or corruption or was in violation of section 75 or
section 81; or
(ii) it is in contravention with the fundamental policy of
Indian law; or
(iii) it is in conflict with the most basic notions of
morality or justice.
Explanation 2 - For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of Indian law
shall not entail a review on the merits of the dispute."
21. Thus, as stated above, this Court is required to examine as to
whether the Award is induced or affected by fraud or corruption;
or is in contravention with the fundamental policy of Indian law or
in conflict of the basic notions of morality or justice. No averment
with respect to the Award being induced or affected by a fraud or
corruption was raised by either party. However, it is contended
that the Award is in violation of the fundamental policy of Indian
law.
22. During the pendency of the Appeals, Mecamidi filed an
application to place on record the fact that Mecamidi has gone into
liquidation. In addition, Mecamidi also produced the legal opinion
by French Counsel to clarify that the erstwhile Chairman of
Mecamidi continues to be the legal representative and
Chairman/Chief Executive of the Mecamidi under French Law,
during the liquidation proceedings. It has also been stated that this
issue has also been raised by the parties before the NCLT, New
Delhi and in other ancillary proceedings which are pending
between the parties. Since, this issue is being examined by NCLT
and as stated above, what is pending before this Court is a Petition
under Section 37 of the Arbitration Act. This Court has thus heard
the matter on merits without adverting to an opinion in this regard.
23. The issue before this Court is in a narrow compass. The Arbitral
Tribunal awarded Flovel damages in the sum of Rs. 1.5 crores for
breach of contract by Mecamidi along with interest and the
Arbitral Tribunal further held that Mecamidi has not been able to
prove its losses and thus rejected the counter-claims of Mecamidi.
24. The learned Single Judge set aside the Award in favour of Flovel
on the ground that the Arbitral Tribunal has awarded damages in
the absence of any evidence. The learned Single Judge further
held that Flovel was also required to show the losses suffered by
it, while being under a duty to mitigate such loss - which has not
been done by Flovel before the Arbitral Tribunal. The learned
Single Judge however upheld the dismissal of the counter-claims
of Mecamidi by the Arbitral Tribunal.
Findings on Claims of Flovel
25. An examination of the claims of Flovel shows that Claim No. 1 of
Flovel was related to the breach of obligations of the JVSA and
the supplementary JVSA including under Clause 2.4 of the JVSA.
The Arbitral Tribunal held that Mecamidi had breached its
obligations to subscribe to the equity share capital of the Venture
Company by delaying the payment of the 2nd instalment payment
of Rs. 1.4 crores in terms of the Clause 2.4 of the JVSA.
26. Claim No. 2 of Flovel was a declaration that Mecamidi had
breached its obligations under Clause 19 of the JVSA and Article
22 of the Article of Association of the Venture Company, for
which a claim in the sum of Rs.4,32,97,948.36/- was made by
Flovel as is set out in the Table reproduced in paragraph 17.3
hereinabove. Clause 19 of the JVSA which discusses financial
obligations reads as follows:
"19. Financial Obligations
19.1 The JV Company may borrow from a bank/financial
institutions/other lending entities additional amounts from time to time
for materializing the business plan. The total raised funds shall be
utilized for meeting the business plan. The Shareholders agree to
provide security, if so required by the bank/financial institutions/other
lending entities and to be agreed between the Shareholders, in equal
proportion."
26.1 Flovel contended that the Venture Company was burdened with
additional financial obligations and that the Directors of Flovel
were obligated to banks for availing loan facilities by furnishing
personal securities and collateral security, no assistance was
provided by Mecamidi. It was further contended that the
processing fees and charges of the bank for the increase in the
authorised and paid-up capital of the Venture Company was to be
shared equally by Mecamidi which was not done. Lastly, the
amounts towards processing fees and lead banking charges and
pre-payment charges were also claimed.
27. Mecamidi, on the other hand, contended that while Clause 19 of
the JVSA pre-supposes an equal proportionality in terms of
shareholding of 50% of shares, it does not envisage that Mecamidi
be burdened by financial obligations in the form of security for
unsecured loans, bank securities or obligations arising out of deed
of indemnities executed by the Venture Company.
28. The Arbitral Tribunal held that Mecamidi did not exercise the
right to subscribe to the balance 25% of equity shares within time
and thus, Clause 19.1 of the JVSA would have to be interpreted to
hold that the shareholders were to secure the loans in equal
proportion. In the view of the Arbitral Tribunal, it would be fair to
interpret this Clause in a manner to mean that equal security was
required to be furnished by Mecamidi. The relevant extract of the
Award is reproduced below:
"44. In our view the parties had agreed for joint venture company and
to hold the share holding in equal proportion. As we have indicated
above instead of equally subscribing to the shares at the first instance,
the parties agreed that Indian Promoter will bring in 75% of the paid
up capital and Mecamidi being foreign partner will bring in 25% of
the paid up capital. A right is given to the Mecamidi being foreign
partner to bring in balance 25% of the paid up capital within 180 days
from date of execution of JVSA which time was subsequently agreed to
be from 12.6.2007. The parties had also agreed that in the event
Mecamidi did not exercise its right to bring in balance 25% of paid up
capital then it will relinquish certain rights relating to quoram of
Board meetings, General meetings, and specified decisions to be taken
in said meeting. Thus, the rights which were to be available to
Mecamidi on being 50% equal shareholder could not have been
available to it if it would have been in minority i.e. to the extent of
25%. We are of the view that Mecamidi did not exercise the right to
subscribe to the balance 25% of the equity shares of Flovel energy
within agreed extended time knowing fully well the consequences. In
this view of the matter, clause 19.1 will have to be interpreted and
enforced accordingly. The parties agreed in clause 19 that the
shareholders are to secure the loans in equal proportion. This equal
proportion had some meaning and Importance. By not subscribing
balance 25% of equity shareholding certain rights as enumerated in
clause 2.8 were forfeited for Mecamidi, while Flovel Energy continued
to operate Its business. In our view, it will be fair to read clause 19.1
to mean that security was to be furnished by Mecamidi equal to the
extent of its proportion in equity shareholding."
[Emphasis is ours]
29. It was on this basis that the Arbitral Tribunal decided to award
damages in the sum of Rs.1.5 crores as well as interest thereon at
the rate of 12% per annum.
30. The learned Single Judge, however, found that damages in the sum
of Rs.1.5 crores could not be awarded as a finding was recorded
by the Arbitral Tribunal that Flovel was unable to show that the
damages were reasonably foreseeable. Relying on Section 73 of
the Contract Act, it was held by the learned Single Judge that
damages claimed cannot be granted as a matter of right but
evidence is required which proves the same.
31. The learned Single Judge discussed the law as applicable to breach
of contract and compensation for loss of damages. While relying
on various judgments of the Supreme Court, the learned Single
Judge held that the damages claimed cannot be granted as a matter
of course and that some material evidence is always necessary.
32. The learned Single Judge also found that the damages of Rs.1.5
crores awarded in a contract where a party was to invest a total of
Rs. 2.5 crores could not be said to be token damages or nominal
damages, especially in view of the fact that Mecamidi had already
made payment of Rs. 1.1 crores as the first instalment albeit, with
some delay. The learned Single Judge further found that the
payment of Euros 94,968.60 which was made by Mecamidi on
18.08.2008, was kept by Flovel for a period of almost 6 months
and subsequently returned and that this does not appear to have
been considered by the Arbitral Tribunal in the Award.
33. The learned Single Judge held that the Arbitral Tribunal noted in
the first instance, that it was for Flovel to show the loss suffered
on account of breach but thereafter, in paragraph 47 of the Award
itself holds that Flovel has failed to produce any evidence to show
the gains it would have made if the Contract was performed. The
Arbitral Tribunal further holds in paragraph 47 that Flovel was
under duty to mitigate the losses it occurred, which has not been
shown to be done. However, in the absence of evidences, awarded
damages which appeared to the Arbitral Tribunal to be reasonable
along with interest. It is apposite to reproduce paragraph 47 of the
Award in this regard which reads as follows:
"47. Flovel has calculated and claimed damages in the sum of Rupees
4,11,85,334.36 as detailed in paragraph 40 above which includes
amounts, that in terms of the contract between the parties, were
payable by the Respondent Mecamidi by way of interest for the loans
or charges for securing a bank guarantee etc. Flovel carried on
business with Mecamidi as an equity shareholder of only 25% instead
of 50% of the share capital. The profit of the business was allotted
accordingly. Flovel was therefore required to show what was the loss
suffered by it on accounts of the breach of contract by Mecamidi.
Flovel was required to prove it by producing evidence to show what
would have been the financial gains for Flovel if Mecamidi had
performed its part of the contract. Unfortunately, Flovel has failed
to do so as it has not produced any evidence to show the gains that
Flovel would have made in the eventuality of the contract being
performed. Further Flovel was also under a positive duty to mitigate
and/or reduce its losses which is not shown to have been done.
Though it cannot be denied that on account of the breaches
committed by Mecamidi, the Claimant must have suffered losses, in
the absence of the substantive evidence to assess the extent of such
loss, the Tribunal can only award damages which in its opinion
appear to be reasonable. Having regard to the facts and
circumstances of this case and the evidence produced by the parties,
this Tribunal is of the view that it would be sufficient and reasonable
to award a sum of Rs. 1,50,00,000.00 (Rs. 1 Crore and 50 Lakhs only)
by way of damages. On the amount awarded by way of damages, the
respondent shall pay interest at the rate of 12% per annum from the
date of the award to the date of payment."
[Emphasis is ours]
34. The learned Single Judge thus set aside the Award after he found
that Flovel failed to produce any evidence of losses it suffered
despite which, the Arbitral Tribunal awarded Rs. 1.5 crores as
damages to Flovel.
35. This Court is thus required to see whether, in the context of
international commercial arbitration, this Award is in conflict with
the fundamental policy of Indian Law and the "public policy of
India" in terms of the provisions of Section 34(2)(b)(ii) and its
Explanation of the Arbitration Act.
36. An examination of the decisions of the Supreme Court since after
the 2016 amendment to the Arbitration Act, show that the
expression public policy is consistently being interpreted in line
with the judgment in the Associate Builders case.
36.1 The Supreme Court in HRD Corporation v. GAIL (India) Ltd.8,
explained that the 246th Law Commission report9 brought in
amendments to the Act narrowing the grounds of challenge to an
award. The judgments of ONGC Ltd. v. Saw Pipes Ltd.10 and
(2018) 12 SCC 471
Law Commission of India -- Report No. 246 dated August 2014 -- Amendments to the Arbitration and
Conciliation Act, 1996
(2003) 5 SCC 705
ONGC Ltd v. Western Geco International Ltd.11 were 'done away
with' while the position of law as was obtained in Renusagar
Power Co. Ltd. v. General Electric Co.12 was brought back and
accordingly, the definition of public policy was to be limited to
the fundamental policy of Indian law and, justice and morality.
Essentially, only those awards which shock the conscience of the
Court as understood in law laid down in Associate Builders case,
would be struck down. It further held that the Award rendered in
the context of an international commercial arbitration will be
subject to the same tests for setting aside under Section 34, as for
enforcement under Section 48, and that the ground of patent
illegality will not be available:
"18. Shri Divan is right in drawing our attention to the fact that the
246th Law Commission Report brought in amendments to the Act
narrowing the grounds of challenge coterminous with seeing that
independent, impartial and neutral arbitrators are appointed and that,
therefore, we must be careful in preserving such independence,
impartiality and neutrality of arbitrators. In fact, the same Law
Commission Report has amended Sections 28 and 34 so as to narrow
grounds of challenge available under the Act. The judgment in
ONGC Ltd. V. Saw Pipes Ltd. has been expressly done away with. So
has the judgment in ONGC Ltd. v. Western Geco International Ltd.
Both Sections 34 and 48 have been brought back to the position of law
contained in Renusagar Power Co. Ltd. v. General Electric Co. where
"public policy" will now include only two of the three things set out
therein viz. "fundamental policy of Indian law" and "justice or
morality". The ground relating to "the interest of India" no longer
obtains. "Fundamental policy of Indian law" is now to be
understood as laid down in Renusagar. "Justice or morality" has
been tightened and is now to be understood as meaning only basic
notions of justice and morality i.e. such notions as would shock the
conscience of the Court as understood in Associate Builders v. DDA.
Section 28(3) has also been amended to bring it in line with the
judgment of this Court in Associate Builders, making it clear that the
(2014) 9 SCC 263
1994 Supp (1) SCC 644
construction of the terms of the contract is primarily for the arbitrator
to decide unless it is found that such a construction is not a possible
one.
19. Thus, an award rendered in an international commercial
arbitration - whether in India or abroad - is subject to the same tests
qua setting aside under Section 34 or enforcement under Section 48,
as the case may be. The only difference is that in an arbitral award
governed by Part I, arising out of an arbitration other than an
international commercial arbitration, one more ground of challenge is
available viz. patent illegality appearing on the face of the award. The
ground of patent illegality would not be established, if there is merely
an erroneous application of the law or a reappreciation of evidence."
[Emphasis is ours]
36.2 In the Ssangyong case, the Supreme Court reinforced the principle
of minimal judicial interference including in awards arising out of
international commercial arbitration. It was held that a violation of
a substantive law of India, will not amount to patent illegality,
much less to a violation of public policy. An award can be held to
be in contravention of public policy, if the Court finds
adjudication on matters beyond the arbitration agreement or
beyond the reference to the Arbitral Tribunal. While a decision
based on ignorance of vital evidence may constitute patent
illegality and render the award as perverse, it would not violate
public policy. It was held:
"39. To elucidate, para 42.1 of Associate Builders [Associate Builders
v. DDA, (2015) 3 SCC 49:(2015) 2 SCC (Civ) 204] , namely, a mere
contravention of the substantive law of India, by itself, is no longer a
ground available to set aside an arbitral award. Para 42.2 of
Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49:
(2015) 2 SCC (Civ) 204] , however, would remain, for if an arbitrator
gives no reasons for an award and contravenes Section 31(3) of the
1996 Act, that would certainly amount to a patent illegality on the
face of the award.
xxxxx
41. What is important to note is that a decision which is perverse, as
understood in paras 31 and 32 of Associate Builders, while no longer
being a ground for challenge under "public policy of India", would
certainly amount to a patent illegality appearing on the face of the
award. Thus, a finding based on no evidence at all or an award
which ignores vital evidence in arriving at its decision would be
perverse and liable to be set aside on the ground of patent illegality.
Additionally, a finding based on documents taken behind the back of
the parties by the arbitrator would also qualify as a decision based on
no evidence inasmuch as such decision is not based on evidence led
by the parties, and therefore, would also have to be characterized as
perverse.
xxxxxx
69. We therefore hold, following the aforesaid authorities, that in the
guise of misinterpretation of the contract, and consequent "errors of
jurisdiction", it is not possible to state that the arbitral award would
be beyond the scope of submission to arbitration if otherwise the
aforesaid misinterpretation (which would include going beyond the
terms of the contract), could be said to have been fairly
comprehended as "disputes" within the arbitration agreement, or
which were referred to the decision of the arbitrators as understood
by the authorities above. If an arbitrator is alleged to have wandered
outside the contract and dealt with matters not allotted to him, this
would be a jurisdictional error which could be corrected on the
ground of "patent illegality", which, as we have seen would not
apply to international commercial arbitrations that are decided
under Part II of the 1996 Act. To bring in by the backdoor grounds
relatable to Section 28(3) of the 1996 Act to be matters beyond the
scope of submission to arbitration under Section 34(2)(a)(iv) would
not be permissible as this ground must be construed narrowly and so
construed, must refer only to matters which are beyond the
arbitration agreement or beyond the reference to the Arbitral
Tribunal".
xxxxx
76. However, when it comes to the public policy of India argument
based upon "most basic notions of justice", it is clear that this
ground can be attracted only in very exceptional circumstances
when the conscience of the Court is shocked by infraction of
fundamental notions or principles of justice. ... However, we repeat
that this ground is available only in very exceptional circumstances,
such as the fact situation in the present case. Under no circumstance
can any court interfere with an arbitral award on the ground that
justice has not been done in the opinion of the Court. That would be
an entry into the merits of the dispute which, as we have seen, is
contrary to the ethos of Section 34 of the 1996 Act, as has been noted
earlier in this judgment."
[Emphasis is ours]
36.3 Subsequently, the Supreme Court in Vijay Karia v. Prysmian Cavi
E Sistemi Sri13, while discussing the law on enforcement of a
foreign award, further clarified that the ground of 'patent
illegality' appearing on the face of the Award, is outside the scope
of interference with an Award made in an international
commercial arbitration as follow:
"42. At this stage it is important to advert to amendments that were
made by the Arbitration and Conciliation (Amendment) Act, 2015
(hereinafter referred to as "the 2015 Amendment Act"). Section 48
was amended to delete the ground of "contrary to the interest of
India". Also, what was important was to reiterate the Renusagar
position, that the test as to whether there is a contravention with the
fundamental policy of Indian law shall not entail a review on the
merits of the dispute [vide Explanation 2 to Section 48(2)].
43. It will be noticed that in the context of challenge to domestic
awards, Section 34 of the Arbitration Act differentiates between
international commercial arbitrations held in India and other
arbitrations held in India. So far as "the public policy of India"
ground is concerned, both Sections 34 and 48 are now identical, so
that in an international commercial arbitration conducted in India,
the ground of challenge relating to "public policy of India" would be
the same as the ground of resisting enforcement of a foreign award
in India. Why it is important to advert to this feature of the 2015
Amendment Act is that all grounds relating to patent illegality
appearing on the face of the award are outside the scope of
interference with international commercial arbitration awards made
in India and foreign awards whose enforcement is resisted in India.
[Emphasis is ours]
36.4 The Supreme Court in the Vijay Karia case has emphatically held
that poor reasoning in rejecting a material issue or claim does not,
by itself, meet the high threshold required to interfere with an
arbitral award under the guise of public policy. The Court clarified
that a judicial authority's disagreement with the tribunal's
reasoning as not being adequate or its belief that justice has not
(2020) 11 SCC 1
been served, does not justify interference with the award and such
an approach would run counter to the fundamental ethos of
arbitration and the principle of minimal judicial intervention
enshrined in Section 34 of the Arbitration Act. It is apposite to
refer to the following extract:
"83.Having said this, however, if a foreign award fails to
determine a material issue which goes to the root of the matter or
fails to decide a claim or counterclaim in its entirety, the award
may shock the conscience of the Court and may not be enforced,
as was done by the Delhi High Court in Campos [Campos Bros.
Farms v. Matru Bhumi Supply Chain (P) Ltd., 2019 SCC OnLine
Del 8350 : (2019) 261 DLT 201] on the ground of violation of the
public policy of India, in that it would then offend a most basic
notion of justice in this country. It must always be remembered
that poor reasoning, by which a material issue or claim is
rejected, can never fall in this class of cases. Also, issues that the
Tribunal considered essential and has addressed must be given
their due weight -- it often happens that the Tribunal considers a
particular issue as essential and answers it, which by implication
would mean that the other issue or issues raised have been
implicitly rejected. For example, two parties may both allege that
the other is in breach. A finding that one party is in breach, without
expressly stating that the other party is not in breach, would
amount to a decision on both a claim and a counterclaim, as to
which party is in breach. Similarly, after hearing the parties, a
certain sum may be awarded as damages and an issue as to
interest may not be answered at all. This again may, on the facts of
a given case, amount to an implied rejection of the claim for
interest. The important point to be considered is that the foreign
award must be read as a whole, fairly, and without nit-picking. If
read as a whole, the said award has addressed the basic issues
raised by the parties and has, in substance, decided the claims
and counterclaims of the parties, enforcement must follow."
[Emphasis is ours]
36.5 In Gemini Bay Transcription (P) Ltd. v. Integrated Sales Service
Ltd.14, the Supreme Court while discussing the scope of challenge
under Section 48(1)(c) of the Arbitration Act, which is pari
materia with Section 34(2)(a)(iv), after the 2015 Amendment, has
held that the "public policy of India" is an even more circumspect
ground which does not even encompass the "patent illegality
appearing on the face of the award", as a reason to set aside an
award in an international commercial arbitration under Section 34.
As such, after the 2015 Amendment "perversity of an award" will
not be available to set aside an award in an international
commercial arbitration under Section 34, or to refuse enforcement
of a foreign award under Section 48 of Arbitration Act. Relying on
the Ssangyong case it was held as follows:
"60. The judgment in Ssangyong [Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC
(Civ) 213] noted in para 29 that Section 48 of the Act has also
been amended in the same manner as Section 34 of the Act. The
ground of "patent illegality appearing on the face of the award" is
an independent ground of challenge which applies only to awards
made under Part I which do not involve international commercial
arbitrations. Thus, the "public policy of India" ground after the
2015 Amendment does not take within its scope, "perversity of an
award" as a ground to set aside an award in an international
commercial arbitration under Section 34, and concomitantly as a
ground to refuse enforcement of a foreign award under Section
48, being a pari materia provision which appears in Part II of the
Act. This argument must therefore stand rejected.
[Emphasis is ours]
37. The learned Single Judge's decision holding that the Award is in
violation of a statutory provision and thus in conflict of the public
policy of India as envisaged under Section 34 of the Arbitration
Act, cannot thus be upheld.
38. This Court agrees with the submission of the learned Counsel for
Mecamidi that the principle of 'guess-timation' cannot be applied
________________
(2022) 1 SCC 753
where no evidence is produced. The Supreme Court in the
Trishala Jain case has held that the guesswork has to be used with
caution for determination of compensation and is only intended to
bridge the gap to meet the ends of justice. It was further held that
the principle of 'guess-timation' is to be used where the evidence
produced by the parties is not sufficient to determine the
compensation with exactitude. The relevant extract reads as
follows:
"64. These precedents clearly demonstrate that the court may apply
some guesswork before it could arrive at a final determination, which
is in consonance with the statutory law as well as the principles stated
in the judicial pronouncements. As already noticed, the guesswork
has to be used for determination of compensation with greater
element of caution and the principle of guesstimation will have no
application to the case of "no evidence". This principle is only
intended to bridge the gap between the calculated compensation and
the actual compensation that the claimants may be entitled to receive
as per the facts of a given case to meet the ends of justice.
65. It will be appropriate for us to state certain principles controlling
the application of "guesstimate":
(a) Wherever the evidence produced by the parties is not
sufficient to determine the compensation with exactitude, this
principle can be resorted to.
(b) Discretion of the court in applying guesswork to the facts of
a given case is not unfettered but has to be reasonable and
should have a connection to the data on record produced by the
parties by way of evidence. Further, this entire exercise has to
be within the limitations specified under Sections 23 and 24 of
the Act and cannot be made in detriment thereto."
[Emphasis is ours]
39. However, as discussed above, the conclusion that there was no
adequate evidence produced by Flovel, is once again not a ground
available for challenge to the Award. Lack of evidence or
wrongful appreciation of the evidence, while could in certain
circumstances, be a ground to set aside an Award as being patently
illegal, the same would not, however, be in conflict with the public
policy of India.
Findings on counter-claims of Mecamidi
40. The Arbitral Tribunal found that the 3 agreements entered between
the parties namely the Name Protection License Agreement,
Technical Know-How License Agreement and Trademarks
License User Agreement were co-terminus with the JVSA and that
if the parties would have resolved their disputes under the JVSA,
the disputes under these Agreements would not have arisen. Flovel
contended that the counter-claims proceeded on the basis that
there is a legal and valid termination of JVSA and since the
termination was unilaterally by Mecamidi, the counter-claims of
Mecamidi are not maintainable. This contention was rejected by
the Arbitral Tribunal. The Arbitral Tribunal clubbed the Counter-
claim Nos. 1, 2 and 4 of Mecamidi and dealt with them together.
41. Counter-claim Nos.1, 2 and 4 of Mecamidi were the claims in
relation to the failure of Flovel to cease use of the word
'Mecamidi' even after the termination of the JVSA, Name
Protection Agreement and the Trademarks License User
Agreement. The Arbitral Tribunal held that there was no breach on
the part of Flovel in not taking immediate steps for changing the
name of Venture Company. The Arbitral Tribunal held that
Mecamidi was part of the Board and a shareholder of the Venture
Company and that Flovel was within its right to continue the name
of the Venture Company with the word 'Mecamidi' in it since
Mecamidi continued to be a shareholder of the Venture Company
even post the termination of the JVSA.
42. The Arbitral Tribunal further held that Mecamidi failed to place
on record any evidence to support its claim for loss suffered as a
consequence of a continuous use of its name and that neither was
there any basis for the losses nor any proof for such losses was
produced. The learned Single Judge held that as per the facts, there
was no basis for making of such counter-claims and, hence,
upheld the Award rejecting the same.
43. Counter-claim No. 3 of Mecamidi was its claim in paragraph 10 of
its counter-claims, in relation to breach of Technical Know How
Agreement and for loss of goodwill and harm caused to
Mecamidi's reputation as a consequence thereof. Mecamidi
contended that Flovel misrepresented to its customers that
Mecamidi was still part of the Venture Company, even after the
termination of the agreement on 22.08.2009 [hereinafter referred
to as 'Termination Date']. Mecamidi set out the names of certain
projects which were bid for by the Venture Company pursuant to
the Termination Date with the name of the Venture Company
containing the word 'Mecamidi' in its name. Flovel on the other
hand contended that Mecamidi was a 22.68% shareholder of the
Venture Company up to 20.04.2012 and as such there could be no
misrepresentation by the Venture Company.
44. The Arbitral Tribunal agreed with the contentions of the Flovel. It
held that not all documents referred to including, a 'reference list'
were provided to the Arbitral Tribunal by either party and thus, in
the absence of documentary evidence, it could not be held that
such list of Mecamidi was misused. The Arbitral Tribunal further
relied upon the evidence of the witness of Mecamidi, who deposed
that that there is no loss of goodwill. In addition, based on the fact
that no valuation report assessing the damages was filed by
Mecamidi and that for damages have been claimed on the basis of
projected figures alone.
45. Mecamidi also sought damages for the loss of goodwill and harm
to their reputation caused by the Flovel's actions. As such
Mecamidi claimed damages based on the economic value of
Mecamidi's 50% share in the Venture Company. Using figures
from Venture Company's website, Mecamidi estimated an average
annual order intake of 954 million Indian Rupees, with an
Earnings Before Interest, Taxes, Depreciation, and Amortization
[hereinafter referred to as 'EBITDA'] of approximately 10% (95
million Indian Rupees). The damages were then calculated as
follows: EBITDA (95 million) multiplied by 8 [current rate of
industrial activity valuation] multiplied by 50% (Mecamidi's
share), resulting in a claim of 380 million Indian Rupees. The
relevant extract of Counter-Claims of Mecamidi is produced
below:
"10) Calculation of Damages for Loss of Goodwill of Mecamidi and
Harm Caused by the Respondents to Mecamidi's Reputation
10.1 It is most respectfully submitted that in its commitment to India
and to the small hydro power sector in India, the Claimant had
dedicated its sincere efforts to supporting the growth of Respondent
No. 2 in India's small hydro power sector from 2007 till 2009. It is
evident from a perusal of the 'Key Figures' appearing on the website
of website of Respondent No. 2, www.flovel.in [Annexure C-39 hereto]
that the latter has performed well during the first three years i.e. from
2007 till 2009. It is submitted that this has been entirely due to the
reference lists, clients' lists, documentation, classified technical
information, technical know how, equipment supply lists and all other
documentation and technical information et al of Mecamidi...
xxx xxx xxx
EBIDTA of Indian Rupees 95 million multiplied 8 times by the current
rate of the valuation of the industrial activity multiplied by 50% of the
share that Mecamidi [the Claimant] would have been entitled to under
the JVSA and the Supplementary Agreement: Indian Rupees 380
million"
46. The Arbitral Tribunal has examined the evidence produced before
it, which included the cross examination of witnesses of Mecamidi
and held that there was no loss of goodwill and that damages were
claimed on the basis of projected figures only. The Arbitral
Tribunal held that Mecamidi filed a claim for damages which was
in essence its share of profit, rather than loss of goodwill and
reputation. The Arbitral Tribunal relied on the calculation for such
claim and held that it is on a presumptive basis. It further held that
Mecamidi failed to show any loss of goodwill or reputation caused
by use of its name and that calculation of losses is on the basis of
projected profits and not actual losses. Thus, the counter-claim
No. 3 of Mecamidi was also rejected by the Arbitral Tribunal.
47. It is apposite to refer to the extract of findings of the Arbitral
Tribunal on the counter-claims of Mecamidi which are set forth
below:
"78. So far as submitting the bid is concerned by Flovel Energy with
Mecamidi as part of its Corporate name is concerned, we have
already answered the same in favour of Flovel. So far as use of
reference list is concerned, Mecamidi has failed to show that in all
these projects (except chirchind) reference list of Mecamidi was used.
In respect of Chirchind, it appears that the bid was called for on
14.2.2008 (Annexure C 13 and 18.4.2008 Annexure C 48) and
negotiations continued thereafter. Neither Mecamidi nor Flovel has
placed on record any document to give the date when the reference
list of Mecamidi was submitted by Flovel Energy. In the absence of
positive evidence, it is difficult to hold that Flovel Energy continued
to use the reference list of Mecamidi after termination of JVSA and
3 related agreements by Mecamidi. Mr. Marcy in answer to Questions
no. 74 to 78 during his cross examination admitted that it was
Mecamidi's belief that Flovel Mecamidi Energy might have used the
reference list of Mecamidi but they did not possess documentary
Evidence nor did they possess any document to show that Mecamidi
supplied the design and engineering for said 5 projects. Mecamidi has
failed to provide source of its knowledge that its reference list was
used by Flovel Mecamidi Energy for the named 5 projects. Mr.
Marcy has admitted in his cross examination at Ques No. 83, 84, 85,
126 and 127 that there is no loss of goodwill nor there is any
evaluation report for assessment of damages and damages have been
claimed on basis of projected figures only.
79. There is another reason for declining this claim, as Mecamidi
inspite of contending that there was breach of Technical Know
Agreement and Flovel could not have used the reference list of
Mecamidi after termination of JVSA yet, it has claimed damages on
sharing basis by saying that it is entitled to 50% share of the Joint
Venture Company, i.e. Flovel Mecamidi Energy Private Limited. It
has contended that Earning of JV company before taxes was Indian
Rupees 95 million. Mecamidi has multiplied Rs. 95 million 8 times
(contending it to be the current rate of the valuation of the industrial
activity) and then divided by 50% being the share of Mecamidi. By
this method it has claimed Indian Rupees 380 million. In effect
Mecamidi is claiming its share of profit rather than loss of good will
and reputation. We do not find any merit in the claim for the reason
that Mecamidi has failed to show that any bid was awarded to Flovel
solely by the use of name of Mecamidi or its reference list. It has
also failed to show any loss was caused to its good will and
reputation by either use of name of Mecamidi or its reference list.
The calculation of loss is as per projected profits and share of
Mecamidi. The figures are imaginary as well as presumptive."
[Emphasis is ours]
48. The learned Single Judge held that it cannot sit as a Court of
Appeal to re-examine the evidence and upheld these findings of
the Arbitral Tribunal. In view of the discussions above, the Court
does not find any reason to interfere with these concurrent
findings. The Arbitral Tribunal examined the evidence placed
before it and reached its decision. No ground for its interference
has been made out.
Conclusion
49. The Arbitral Tribunal found Mecamidi to be in breach of the
JVSA with Flovel and proceeded to award what it considered in
these circumstances to be reasonable and fair and in terms of the
evidence and material placed before it. It is not within the domain
of this Court to re-examine the merits or go behind the reasoning
of the Arbitral Tribunal's award to Flovel. The Arbitral Tribunal
in its wisdom also thought fit not to grant compensation to
Mecamidi.
50. The Award does not shock the conscience of the Court by an
infraction of the fundamental principles of justice or morality. The
Award when read has addressed and decided all the claims and
counter-claims of the parties.
51. In view of the foregoing discussions, the impugned judgment is
set aside to the extent that it disallowed the claims of Flovel and
the Award of the Arbitral Tribunal is restored.
52. The Arbitral Tribunal awarded costs in the sum of Rs. 20 lakhs as
cost of proceedings to Flovel which was challenged by Mecamidi.
The costs were awarded to Flovel in light of the breach of JVSA.
The learned Single Judge found such cost to be reasonable.
Section 31-A of the Arbitration Act provides for reasonable costs
to be awarded at the discretion of the Arbitral Tribunal. We find
no basis to interfere with this finding of the learned Single Judge.
Accordingly, the award of cost of Rs. 20 lacs is upheld.
53. Resultantly, FAO(OS) (COMM) 202/2019 stands allowed, and
FAO(OS)(COMM) 263/2019 is dismissed. All pending
Applications stand closed.
(TARA VITASTA GANJU)
JUDGE
(VIBHU BAKHRU)
JUDGE
JULY 15, 2024/r
