Madras High Court
Bharat Heavy Electricals Limited vs Capco Water Solutions Private ... on 11 October, 2022
O.P.No.799 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 11.10.2022
CORAM
THE HONOURABLE MR.JUSTICE SENTHILKUMAR RAMAMOORTHY
O.P.No.799 of 2019
and
A.No.7623 of 2019
Bharat Heavy Electricals Limited,
690, Anna Salai, EVR Periyar Building,
Nandanam, Chennai - 600 035. ... Petitioner
vs.
Capco Water Solutions Private Limited,
Having its Office at 15AJ, Laxmi indl Estate,
Link Road, Andheri West, Mumbai - 400 053. ... Respondent
(Amended as per order dated 30.09.2021
in A.No.3418 of 2021)
PRAYER: Original Petition filed under Section 34 2(b)(ii) of the
Arbitration and Conciliation Act, pleased to set aside the Award dated May
5, 2019 to the extent that it directs the petitioner to pay Rs.1,40,86,270/-
payable with interest at 12% per annum from 01.01.2014 on
Rs.1,07,95,570/- and further interest at 18% per annum thereof from the
1/22
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date of the award till payment and to set aside the rejection of counter
claims made by the petitioner and for costs.
For Petitioner : Mr.Krishna Srinivasan
for M/s.S.Ramasubramaniam Associates
For Respondent : Mr.Satish Parasaran, senior counsel,
for Ms.Priti Mohan,
Ms.R.S.Poornima and
Ms.Anisha Chandrakumar
ORDER
An arbitral award dated 05.05.2019 (the Award) is assailed by the
petitioner under Section 34 of the Arbitration and Conciliation Act, 1996
(the Arbitration Act).
2. A contract was awarded by the Tamil Nadu Generation and
Distribution Corporation (TANGEDCO) to the petitioner in relation to its
power projects. A part of the work under the said contract was awarded by
the petitioner to the respondent pursuant to two letters of intent for supply,
and erection and commissioning, respectively. Pursuant thereto, purchase
order dated 27.10.2012 was issued in relation to the supply of material and
work order dated 27.12.2012 in respect of erection and commissioning. The
contract provided for a time schedule in respect of supply and erection and
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commissioning. It also provided for the imposition of liquidated damages
for delay and risk purchase by the petitioner. Clause 23 and 24 deal with
cancellation / termination of the contract under the contingencies specified
therein.
3. A dispute arose between the parties with regard to the performance
of obligations under the contract and correspondence was exchanged in
relation thereto. Eventually, by communication dated 19.12.2013, the
petitioner terminated the purchase order and work order issued to the
respondent by citing clauses 13 and 23 of the general conditions of contract.
Thereafter, the petitioner made a call on and encashed the performance bank
guarantee.
4. In these circumstances, the respondent invoked the arbitration
clause in the contract and, upon constitution of the arbitral tribunal,
submitted a statement of claim by which an aggregate sum of
Rs.1,08,38,802/- was claimed. The said claims included: a claim for the
total value of custom made material procured or produced for supply to the
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petitioner and which the petitioner allegedly fail to take delivery of; total
value of materials allegedly retained by and lying at the site of the
respondent; monies payable in respect of the call made on the performance
bank guarantee with interest thereon; loss of profit due to termination; loss
of reputation and goodwill; and differential tax payable in view of non
submission of C-Forms. The petitioner filed a statement of defence and
refuted all the claims. Upon completion of pleadings, the arbitral tribunal
framed ten issues for consideration which are set out at paragraph 6 of the
Award. The claimant adduced evidence by examining C.W.1 and C.W.2 as
its witnesses. Through the said witnesses, Exs.C1 to C85 were exhibited.
The petitioner herein examined one witness, R.W.1, and exhibited 123
documents as Exs.R1 to R123. Each witness was cross examined by
learned counsel for the counter party. Upon considering the pleadings,
evidence and submissions of parties, the arbitral tribunal rejected the two
claims relating to value of materials, the claim for loss of profit, and the
claim for loss of reputation and goodwill. The arbitral tribunal concluded
that the termination of the contract by the petitioner was invalid, and the
only claims that were allowed were in respect of the call made on the bank
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O.P.No.799 of 2019
guarantee and for payment of differential tax. The Award is assailed by the
petitioner herein as regards the aspects that were held in favour of the
respondent. Although several claims of the respondent were rejected, the
respondent has not challenged the Award.
5. Oral submissions were made on behalf of the petitioner by
Mr.Krishna Srinivasan, learned counsel, and on behalf of the respondent by
Mr.Satish Parasaran, learned senior counsel.
6. The first submission of Mr.Krishna Srinivasan was that the arbitral
tribunal examined the events of delay and entered the finding at paragraph
13.18 of the Award that both parties failed to perform their respective
obligations under the contract. In spite of concluding that both parties
failed to perform their respective obligations, he submitted that the arbitral
tribunal committed the patent illegality of importing principles of natural
justice into a commercial contract and thereby holding that the termination
was not justified. By placing reliance on the judgment of the Hon'ble
Supreme Court in State of Gujarat and others v. Meghji Pethraj Shah
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O.P.No.799 of 2019
Charitable Trust and others, 1994(3) SCC 552, particularly paragraph 22
thereof, he contended that principles of natural justice are not applicable in
the context of a contract since the said principles relate to public and not
private law. On this issue, he placed the judgment in Nagarjuna
Construction Company Limited v. Government of Andhra Pradesh and
others, (2008) 16 SCC 276, so as to distinguish the same on the ground that
interference in the said case was largely on the basis that materials that were
relied upon by the public sector enterprise (the employer therein) had not
been made available to the contractor. Therefore, he submitted that the
principle laid down in the said decision is inapplicable to the case at hand.
7. The next contention of learned counsel was that the arbitral
tribunal failed to take into account the communications that preceded the
termination notice. By drawing reference to the communication dated
21.09.2013 from the petitioner to the respondent, the communication dated
19.10.2013 from the petitioner to the respondent and, in particular, the reply
dated 19.10.2013 from the respondent to the petitioner, he pointed out that
the respondent acknowledged acceptance of the content of the letter dated
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19.10.2013. Once such admission was made by the respondent, he
submitted that no prior notice was required before the termination of the
contract. In effect, learned counsel contended that importing principles of
natural justice into a commercial contract violates the fundamental policy of
Indian law and is even otherwise patently illegal.
8. These contentions were refuted by Mr.Satish Parasaran, learned
senior counsel. Mr.Satish Parasaran opened his submissions by stating that
the role of the respondent in the larger contract awarded by TANGEDCO to
the petitioner was limited. Therefore, the supply contract was for a total
value of about Rs.9.1 crore and the erection and commissioning contract for
a total value of about Rs.1.66 crores. Although about 50% of the work was
completed at the time of termination, he stated that the respondent was paid
only about Rs.47 lakhs. In addition, the performance bank guarantee for a
sum of about Rs.1.07 crore was called on and encashed. After pointing out
that the claims of the respondent before the arbitral tribunal were rejected
except for the claims relating to the bank guarantee and differential tax, he
turned to the findings of the arbitral tribunal on delay.
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9. By drawing reference to paragraphs 13.1 to 13.18 of the Award, he
pointed out that the arbitral tribunal dealt with the delay events under four
heads. With regard to non availability of work front, he referred to the
finding at paragraph 13.4 of the Award that the work front had not been
made available by the petitioner because even the external foundation had
not been completed during the last week of April 2013. With reference to
the delay in fixing dosing point, he referred to the finding at paragraph 13.9
to the effect that the petitioner herein caused delay of nearly six months. He
also pointed out that the arbitral tribunal held that the delay in inspection
calls and approvals could not be attributed to the petitioner herein. On
considering the delay events cumulatively, he pointed out that the tribunal
recorded the conclusion at paragraph 13.18 that both parties failed to
perform their respective obligations under the contract.
10. According to learned senior counsel, the conclusions in paragraph
14 of the Award should be read in the context of the conclusions in
paragraph 13 and, if so read, it is evident that the arbitral tribunal proceeded
to consider the other reasons set out in the termination notice in light of the
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findings in paragraph 13. By adverting to the alleged non-involvement of
the technology partner, Severn Trent, he pointed out that the arbitral
tribunal recorded reasons such as the absence of reference to the technology
partner in the letters of intent, supply and work order as the basis to reject
that ground for termination. Similarly, he submitted that in paragraphs 14.3
and 14.4, the other reasons cited in the termination notice were considered
and rejected for reasons set out therein. In these circumstances, he
contended that the conclusion that the termination was not justified does not
call for interference under any of the grounds contained in Section 34 of the
Arbitration Act.
11. In light of the contentions of the contesting parties, the first aspect
that requires examination is the finding of the arbitral tribunal with regard to
delay. As adverted to earlier, both parties adduced oral and documentary
evidence. In paragraph 7 of the Award, the arbitral tribunal set out details of
the evidence placed before the said tribunal. In response to a query, it was
admitted that neither party placed evidence of the critical path nor provided
analysis in respect thereof. In that situation, upon considering the pleadings,
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O.P.No.799 of 2019
evidence on record and submissions, the arbitral tribunal enumerated four
delay events in paragraph 13.1 of the Award. Thereafter, the arbitral
tribunal dealt with each delay event extensively. As pointed out by learned
senior counsel for the respondent, on the issue of non availability of work
front, the arbitral tribunal recorded conclusions at paragraph 13.4 of the
Award. In relevant part, it reads as under:
"From the answer to question no.53 in the
cross examination of R.W.1, it is clear that the
external foundation was not even completed, even
during the last week of April 2013".
Similarly, in paragraph 13.6, the arbitral tribunal recorded as under:
"Even with respect to installation of
Monorail, which is within the scope of the
Respondent, in the Email dated 17.10.2013,
Ex.C27, the Respondent has clearly stated that for
want of work front, the Respondent was unable to
proceed with Monorail work and promised to
clear the work front by 21.10.2013. Since the
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same work was not completed till 22.10.2013, the
Claimant sent a reminder to the Respondent on
22.10.2013. From the said Emails dated and
22.10.2013 and 15.12.2013, it can be seen that
even after completion date, the Civil works were
not completed by the Respondent."
12. The delay in fixing dosing was dealt with at paragraph 13.9, in
relevant part, as under:
"Ultimately, only on in 03.07.2013, the
Respondent finally marked the position of the
Dosing Point and informed the same to the
Claimant. Due to the changes made in fixing the
intake Dosing Point by the Respondent which was
finalized only on 03.07.2013, it cannot be denied
that the Claimant could not place Orders for the
required pipes before the date. Such a delay, due
to the above facts, is to be attributable only to the
Respondent. The Learned counsel for the
Respondent tried to put the blame on the Claimant
in not proceeding with 4 Bay Dosing Point. But,
by saying that, the Respondent cannot escape
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from its obligation. So the delay caused by the
Respondent, for nearly 6 months, would have been
affected the progress of the work and such delay
is to be attributable, only to the Respondent."
13. On the contrary, with regard to delay in approval by the petitioner
herein, the following finding was recorded in paragraph 13.12 in favour of
the petitioner:
"Though the Claimant has come
forward with the case that the Piping Layout
and the Diffuser installation was submitted
to the Respondent on six occasions, it was
approved only after one year, it is not
pointed out, as to why such reviews were
required for six occasions. If it is for the
valid reasons, the Respondent cannot be
blamed."
14. Similarly, as regards the delay in making inspection calls, the
finding at paragraph 13.16 is in favour of the petitioner. The said finding is
set out below:
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"No reason is given by the Claimant as
to why the assembly of Electrolytes Skid
could not be done at site. The difficulty
arose only because of the Claimant's conduct
in having assembled at its factory without
doing it at site, though sufficient materials
had already been delivered at site. Though
the Inspection Agency had inspected, as
mentioned above, and as per Ex.R90, the
report was cancelled, as void due to the
reasons mentioned therein. So it cannot be
said that the Respondent caused the delay
regarding Inspection Calls. The delay was
only due to the Claimant's decision to
assemble the Electrolytes Skid, outside the
site and make the Inspection Agency to
inspect, without informing the fact of
cancellation of Inspection Call by the
Respondent."
15. Based on the above findings on specific delay events, it was
recorded at paragraph 13.18 that both parties failed to perform their
respective obligations under the contract. Therefore, it was held that the
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delay cannot be solely attributed to the respondent herein. The above
findings of the arbitral tribunal were entered in the context of absence of
evidence or analysis of the critical path from either party. When seen in
context, it is a reasonable appraisal of the evidence on record. The arbitral
tribunal is undoubtedly the final arbiter of facts and the conclusions drawn
in the Award in respect of delay do not call for interference under Section
34 of the Arbitration Act either on the ground of disregard of vital evidence
or any other reason.
16. Turning to the question of termination of the contract, as correctly
pointed out by learned senior counsel for the respondent, the conclusions on
termination cannot be viewed in isolation. The said conclusions should be
seen in the context of the findings entered in respect of the delay events that
were dealt with under paragraph 13. Against that backdrop, the validity of
termination was dealt with in paragraphs 14.1 to 14.8. The findings on
termination were assailed by learned counsel for the petitioner primarily on
the ground that principles of natural justice cannot be read into a
commercial contract. Without doubt, the said contention is meritorious and
liable to be accepted. However, an arbitral award cannot be interfered with
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merely on account of one erroneous finding unless such finding goes to the
root of the matter and vitiates the award. Whether this finding vitiates the
Award is examined next by turning to the clauses on termination.
17. Clause 23.1 is relevant for purposes of termination. The said
clause is set out below:
"If the Seller / Contractor fails to deliver the
goods or materials or any installment thereof
within the period(s) fixed for such delivery or
delivers goods or materials not of the contracted
quality and failing to adhere to the contract
specifications or at any time repudiates or
otherwise abandons the contract before expiry of
such period or refuses or is unable to supply
goods or materials covered by the Order /
Contract either in whole or in part or otherwise
fails to perform the Order / Contract or commits
any breach of the Order / Contract not herein
specifically provided for or in the event of the
death of insanity or if the Seller / Contractor being
an individual or if a firm on a partnership thereof,
shall at any time, be adjudged insolvent or shall
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have a receiving order for administration of his
estate made against him or shall take any
proceeding for composition under any Insolvency
Act for the time being in force or make any
assignment of the Order / Contract or enter or if
the firm dissolved under the Partnership Act or if
the Seller / Contractor being a company is would
up voluntarily or by order of a Court or a
Receiver, Liquidator or Manager on behalf of the
debenture holders and creditors is appointed or
circumstances shall have arisen which entitles the
Court of debenture holder and creditors to appoint
a receiver, liquidator or manager, the purchaser
without prejudice to his right to recover any
expenses, losses or damages to which the
purchaser may be put to incur or sustain by reason
of the Seller / Contractor's default or breach of
Order / Contract shall be entitled to cancel the
Order / Contract either in whole or portion thereof
without compensation to the Seller / Contractor
and if the purchaser so desires, he may procure
upon such terms and in such manner as he deems
appropriate, stores not so delivered or others of a
similar description where stores exactly complying
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with particulars are not, in the opinion of the
purchaser, which shall be final, readily
procurable, at the risk and cost of the Seller /
Contractor and the Seller / Contractor shall be
liable to the purchaser for any excess costs
provided that the Seller / Contractor shall
continue the performance of the Order / Contract
to the extent not cancelled under the provisions of
this clause. The Seller / Contractor shall on no
account be entitled to any gain on such
repurchases."
18. On perusal of the above clause, it is evident that the petitioner is
entitled to cancel or terminate the contract only in the event of breach by the
respondent. Put differently, the contract does not provide for “no fault” or
“without reason” termination. In this contractual context, the arbitral
tribunal was certainly entitled to examine the reasons cited for termination
by the petitioner and determine whether the said reasons are sustainable.
This is precisely what the arbitral tribunal did in the various sub-paragraphs
of paragraph 14.
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19. Learned counsel for the petitioner contended that the termination
notice should not be seen in isolation in as much as it references prior
communications between the parties including the letter dated 19.10.2013
from the respondent herein to the petitioner. The said contention is valid
but there is no reason to assume that the arbitral tribunal did not take into
consideration the communication dated 19.10.2013 or the other evidence on
record. As dilated upon earlier, the findings on the various delay events
were entered after taking into consideration both oral and documentary
evidence. Apart from the alleged delay by the respondent, the termination
notice refers to at least three other reasons to justify the termination. The
first of these reasons relates to the alleged misrepresentation by the
respondent that it had a joint venture with M/s. Severn Trent, USA. With
regard to this reason, the arbitral tribunal recorded that the LOI, the bid, the
purchase order and the work order did not make reference to M/s.Severn
Trent, USA. On that basis, the said ground of termination was held to be
unsustainable. The other reason cited in the termination notice was the
alleged import of electrolyser by the respondent from China. As regards
this reason, the arbitral tribunal concurred with the submission of learned
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counsel for the claimant before the tribunal that no material had been
produced by the petitioner to corroborate the said statement. In addition,
the tribunal recorded that all materials were to be deployed in the project
only after inspection and acceptance by the petitioner herein. The third
reason, excluding delay, cited in the termination letter is the delay in
execution of the Gas Chlorination System of the North Chennai project by
the respondent herein. As regards this reason, the tribunal recording the
finding that the Gas Chlorination System is an independent project which is
unconnected with the project forming the subject of the dispute. After
recording all these reasons, the arbitral tribunal held that the termination
was not justified because it was not preceded by a show cause notice and
because the reasons set out therein are unsustainable.
20. As stated earlier, an arbitral award cannot be interfered with
merely because it contains an erroneous finding. There should be a patent
illegality which goes to the root of the matter. In the case at hand, even if
the non-issuance of a show cause notice is held to be irrelevant in the
context of a commercial contract, the conclusion that the termination is
unjustified does not call for interference in the light of other reasons set out
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in paragraphs 13 and 14. The contention, in this regard, of learned counsel
for the petitioner that importing principles of natural justice into a
commercial contract amounts to violation of the fundamental policy of
Indian law is ambitious, to say the least, and completely untenable.
21. While clause 7.4 of the contract enabled the petitioner to make a
call on the bank guarantee, such call was to made only in the event of
default, failure or neglect on the part of the respondent in fulfillment of
performance obligations under the contract. In light of the conclusions that
the termination of the contract was unjustified, the logical corollary was to
direct the petitioner to refund monies appropriated by making a call on and
encashing the bank guarantee. There is no infirmity in the award as regards
the differential tax claim also.
22. In the result, the Award does not call for interference on any of
the grounds canvassed by the petitioner. Hence, O.P.No.799 of 2019 is
dismissed without any order as to costs. Consequently, A.No.7623 of 2019
is closed.
11.10.2022
rna
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O.P.No.799 of 2019
Index : Yes / No
Internet : Yes / No
SENTHILKUMAR RAMAMOORTHY,J
rna
O.P.No.799 of 2019
and
A.No.7623 of 2019
https://www.mhc.tn.gov.in/judis
O.P.No.799 of 2019
11.10.2022
https://www.mhc.tn.gov.in/judis
