Madras High Court
M/S.Praj Industries Limited vs M/S.Veerapandi Common Effluent ... on 30 October, 2024
Author: Krishnan Ramasamy
Bench: Krishnan Ramasamy
Arb.O.P.(Com.Div.) Nos.534 and 634 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on 01.08.2024
Pronounced on 30.10.2024
CORAM
THE HON'BLE Mr. JUSTICE KRISHNAN RAMASAMY
Arb.O.P (Com.Div.) Nos.534 and 634 of 2022
M/s.Praj Industries Limited
represented by its authorized Signatory,
Venugopalan Nair ... Petitioner in
Arb.O.P(Com.Div.)No.534 of 2022
and
... Respondent in
Arb.O.P(Com.Div.) No.634 of 2022
Versus
M/s.Veerapandi Common Effluent Treatment Plant Limited,
No.548/1, Karuppa Gounden Palayam,
Cotton Market Post,
Tirupur-641 604. ... Petitioner in
Arb.O.P(Com.Div.) No.634 of 2023
and
... Respondent in
Arb.O.P(Com.Div.) No.534 of 2023
Prayer in Arb.O.P(Com.Div.)No.534 of 2022:
Arbitration Original Petition filed under Section 34(2) of the
Arbitration and Conciliation Act, 1996, seeking to set aside the Arbitral
Page No.1/26
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Arb.O.P.(Com.Div.) Nos.534 and 634 of 2022
Award dated 05.04.2022 partly passed by the learned Arbitral Tribunal.
Prayer in Arb.O.P(Com.Div.) No.634 of 2022:
Arbitration Original Petition filed under Section 34(2) of the
Arbitration and Conciliation Act, 1996 seeking to set aside the Arbitral
Award, dated 05.04.2022 passed by the learned Arbitral Tribunal.
For Petitioner in
Arb.O.P.(Com.Div.)No.534 of 2022
and ... Mr.Srinath Sridevan,
Respondent in Senior Counsel for
Arb.O.P(Com.Div.) No.634 of 2022 M/s.Ramya Subramaniam
For Petitioner in
Arb.O.P.(Com.Div.) No.634 of 2022
and ... Mr.R.Vidhya Shankar
Respondent in
Arb.O.P.(Com.Div.) No.534 of 2023
****
COMMON ORDER
These Arbitration Original Petitions arise out of the same Arbitral
Award dated 05.04.2022 passed by the learned Arbitral Tribunal.
2. The petitioner in Arb.O.P.No.534 of 2022 has challenged the
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Arb.O.P.(Com.Div.) Nos.534 and 634 of 2022
findings of the Tribunal in respect of rejection of their claim Nos.2, 3, 4 and
their counter claim, while the petitioner in Arb O.P.No.634 of 2022 has
challenged the entire Award.
3. For the sake of convenience, the claimant, M/s.Veerapandi
Common Effluent Treatment Plant Pvt.Ltd, who is the petitioner in
Arb.O.P.No.634 of 2022 will be hereinafter referred to as 'the petitioner'
while the petitioner in Arb O.P.No.534 of 2022, viz., M/s.Praj Industries
Limited, will be hereinafter referred to as 'the respondent'.
4. The brief facts, which led to the filing of the present petitions, are
as follows:
4.1 The petitioner approached the Arbitral Tribunal, by way of a
claim petition, seeking to pass an award for a sum of Rs.29,10,00,000/-
payable by the respondent. The brief facts of the claim petition, are as
follows:
4.2. The petitioner is the Limited Company, formed to meet the
requirements of dying units at Tirupur, who are the Members / Shareholders
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Arb.O.P.(Com.Div.) Nos.534 and 634 of 2022
of the petitioner company, to comply with the statutory guidelines of the
Government of Tamil Nadu to meet the Zero Liquid Discharge (ZLD). The
petitioner Company invited tenders in October, 2012 for the works of
installing, commissioning and operational maintenance of mechanical
evaporator.
5. The Respondent Company approached the petitioner Company and
assured that they are having the requisite expertise, experience, design,
engineering, project management, R&D etc., and they can provide the turn
key solution to the petitioner in achieving Zero Liquid Discharge. The
petitioner Company relied upon the representation made by the Respondent
herein, entered into an Agreement on 28.03.2013 for design, engineering,
sale, supply, erection, and commissioning of mechanical evaporator plant.
The entire work was to be completed within eight months and timely
completion is one of the key criteria of the contract. The total value of the
work was fixed Rs.11,50,00,000/- and the petitioner Company has paid 60%
of the amount i.e., 7.31 crores in full as per the terms of the Agreement.
Consequently, the Respondent Company executed a corporate guarantee on
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Arb.O.P.(Com.Div.) Nos.534 and 634 of 2022
19.04.2013 giving guarantee for performance of their applications under the
Agreement.
6. According to the petitioner, right from the beginning, the
respondent committed inordinate delay and installed machines at a belated
stage. Though the machines have been installed and purportedly attempted
to commission, there was negligible Glauber's Salt recovery. The entire
system was getting chocked within 15 minutes of the operation of the
common effluent treatment plant during trial runs. Even though the
Respondent Company promised to rectify all the defects, they failed not do
so. Ultimately, they attempted making certain modifications in the design
but yet recovery Glauber salt was not satisfactory. The petitioner addressed
repeated letters to the Respondent including the mail dated 31.10.2014 to
which the Respondent replied on 01.11.2014 assuring that performance runs
would be conducted at the earliest after completing necessary pre-
commissioning works. But the commissioning was not completed and this
resulted in a several warnings from the Department of Handloms and
Textiles and Tamil Nadu Pollution Control Board for closure of the
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Arb.O.P.(Com.Div.) Nos.534 and 634 of 2022
petitioner concern for not achieving ZLD even after sanction and release of
Interest Free loan by the Tamil Nadu Government..
7. The petitioner pointed out various defects in the commissioning of
the plants by the mail dated 14.11.2014. The petitioner also conveyed to the
Respondent that there was a serious risk of closure by the Tamil Nadu
Pollution Control Board since ZLD was not achieved for full capacity. To
get over the said problem, the Respondent suggested in their email dated
20.11.2014 that recovery of Mixed Salts can be attempted in the Chiller
Section instead of Glauber Salt, just so that Tamil Nadu Pollution Control
Board may be pacified.
8. At the joint meeting held on 25.11.2014 between the parties, the
Respondent accepted that the plant was a failure, there was no salt recovery
and the Respondent would take steps for rectification so as to achieve at
least 40% within a month, after which, the plant can run with 100% capacity
by end of January 2015. Even after such undertaking also, the Respondent
did not take any steps for the successful completion of the project. The
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Arb.O.P.(Com.Div.) Nos.534 and 634 of 2022
petitioner sent a mail dated 03.12.2014 requesting the Respondent to furnish
the schedule of plan of action to which the Respondent by their mail dated
11.12.2014 agreed to complete modifications and take up the plant run and
further promised that if the plant does not run satisfactorily despite
modifications and alterations, options may be discussed. In the meeting held
on 09.01.2015, the Respondent accepted that the plant was in the trial run
stage was upto 20% capacity/flow only and attempts were being made to
run it at least 40% of its capacity. Till December 2015, as the Respondent
persistently defaulting in completing the commissioning, the petitioner
finally requested the Respondent to submit a comprehensive plan of action
as to how they are intend to reach 100% performance. During the discussion
held on 05.03.2015 the Respondent agreed that the plant was working only
to 25% of the design capacity. Thereafter, the Respondent committed that
by17.04.2015 the full plant will be in operation for full capacity. However,
the Respondent did not take any steps to fulfill the undertaking except again
repeatedly asking for extension.
9. According to the petitioner, they had made all the payments in
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terms of the Agreement. The plant installed by the Respondent is working
upto a maximum of 15% capacity only. The petitioner herein has forced to
use another evaporator from local supplier and this only helped the
petitioner to meet further 25% capacity. Consequently, the petitioner's
member units are running only with maximum of 40% of their individual
capacity utilization resulting in continuous loss. The petitioner invested
crores of rupees with the Respondent only on the basis of promise that the
Respondent has the expertise assistance to fulfill the requirement of the
petitioner for achieving ZLD. However, the Respondent has abandoned the
project. Consequently, the petitioner had sustained heavy loss, i.e. to the
tune of Rs.29,10,00,000/-.
10. Consequently, the petitioner terminated the contract of the
Respondent by letter dated 19.10.2015. The petitioner also intimated the
Respondent that PMA M/s. Enkem Engineers, Chennai agreed to inspect
and submit the report on the performance of the plant on 03.11.2015 to
05.11.2015 and requested the Respondent to send their representative.
Ultimately, the said M/s. Emkem Engineers Private Limited, Chennai
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submitted a report on the performance during 17.11.2015 to 20.11.2015 in
which they categorically mentioned the failure of the project. Based on the
said report, the petitioner quantified the loss suffer by the dying units and
garment sector at a sum of Rs.29,10,000/- and sent a notice dated
27.06.2015 calling upon the Respondent to pay the damages as mentioned
above and as the respondent failed to pay the same, the petitioner invoked
arbitration Clause 7 of the Agreement dated 28.03.2013 and filed the claim
petition before the learned Arbitral Tribunal.
11. The respondent company, resisting the claim petition, filed a
defence statement along with counter claim, wherein, at the outset, it is
denied denied that the entire work was to be completed within 8 months as
the timely completion was dependent on timely fulfilment of petitioner 's
several obligations as per the terms of the contract, mainly among others
supply of steam, completion of civil works and other utilities. The payments
made to the respondent was in tranches after an inordinate delay. The
balance price of the contract is still due.
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12. It is further denied that there is negligible Glauber Salt recovery.
All the equipment were supplied by the respondent on the basis of the
equipment list provided by the petitioner in the tender.
13. On several occasion, the respondent brought to the notice of the
petitioner about process of modifications, addition of specific equipment,
taking into consideration the non-compatibility and non-suitability of the
petitioner given list of equipment for achieving ZLD and producing
Glauber Salt. The choking of the system was entirely due to the scheme of
design basis given by the petitioner in the tender and therefore the
respondent during the execution of the works and subsequent installation of
the equipment was calling upon the petitioner to do design modifications
and add additional equipment. There were no defects at all. On the contrary
the system and equipment was inadequate, for which, the respondent
suggested that the petitioner should carry out necessary design basis
modifications including the addition of equipment and the petitioner also
concurred with this.
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14. The respondent had informed the petitioner that it is executing
two other projects for ZLD and producing Glauber salt and it is confident of
doing it successfully for petitioner 's project also if the petitioner accepts
for process modifications and addition of specific equipment as suggested
by the Respondent. The respondent denied that they attempted making
certain modifications in design but nothing of alleged modifications resulted
in unsatisfactory performance in recovery of Glauber salt and stated that it
is because of the petitioner not allowing the respondent to make
modifications and that the petitioner prematurely terminated the contract.
15. It is further stated that the petitioner having concurred that the
design basis of the plaint given by the petitioner in tender is not suitable and
compatible, for achieving ZLD, allowed the respondent to carry out
necessary experiments during execution of the project in order to enable the
respondent to suggest the suitable modifications and if required addition of
any equipment. The respondent was continuously doing analysis of the
problems faced by the equipment and its design suggested by the petitioner
in the tender and was doing a root cause analysis. According to the
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respondent, in course of time through discussions and several meetings that
took place between the Respondent's technical team, the petitioner and its
consultant, the petitioner realized that the design basis for which the tender
was floated was inadequate in terms of capacity and process time and it
required modifications and additions of certain equipment so that the system
is capable of recovering salts and solids to achieve ZLD. Therefore, the
respondent kept on suggesting modifications by way of installing new
equipment so that the plant can achieve ZLD and recover Glauber salt of
desired quantity.
16. It is further stated that the tender document and the agreement do
not contemplate an obligation on their part to suggest modifications and the
heads of account and the basis of calculations are premature, wrongful and
exaggerated. Therefore it cannot be claimed either in equity/law/ contract or
otherwise. The petitioner had not suffered any loss. The calculations are in
the nature of penalty. There is no genuine pre-estimate of Liquidated
Damages. The termination of contract on 19.10.2015 is illegal. The
performance run and report relied upon by the petitioner cannot be accepted.
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The petitioner has no legal right to reserve any claim to be agitated later on.
The plant in question consists of three parts. The first part being Shell and
Tube based evaporation System for concentration of the effluent. For this
purpose the required steam as specified in the Agreement was to be supplied
by the petitioner in order to achieve the concentration. According to the
respondent even as on today the evaporation which is required and
concentration of effluent which is expected in this equipment is being
carried on even as on today and the same is working as per specifications.
Glauber Salt and thereafter the residue after recovery of Glauber Salt is
inducted into Auxiliary Evaporator and used for further concentration of
effluent and ZLD is achieved. It is stated that the equipment for recovery of
Glauber salt is a bought out item as per the tender conditions. Even at the
time of entering into contract, the respondent informed the petitioner that
the above referred item is a bought out item and the same requires
modification for recovery of require quantity of Glauber salt and
accordingly a clause was incorporated in the Agreement that modifications
as may be required, can be made in the equipment. Therefore, according to
the respondent, after achievement of both the requirements, they discharged
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their obligations.
17. It is stated that n the date of termination of the contract, the
petitioner has to pay a sum of Rs.4,45,21,294/- being the balance price for
all the supplies completed. This sum carries interest at 15% per annum.
Therefore, the respondent raised a counter claim for a sum of
Rs.6,18,66,302/- including the balance due with interest.
18. While pending the arbitral proceedings, the petitioner also filed an
amended claim statement on 09.08,2018, wherein, while reiterating the
averments made in the claim statement, the petitioner claimed a sum of
Rs.57,50,000/- as Liquidated Damages, refund of the amount paid by the
petitioner to the respondent and expenses incurred to rectify the breach and
to produce ZLD. Rs.7,33,17,179 is the amount paid under the contract to the
respondent and a sum of Rs.2,10,00,000/- in all totalling to Rs.9,43,17,179/-
and lastly Rs. 3,88,80,00,000/- as production loss for the period from
December 2013 to March 2018 until filing of the claim. The value of the
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claim is totalled to Rs. 131,98,67,179/-.
19. Resisting the amended claim statement filed by the petitioner, the
respondent also filed a additional defence statement, wherein, while denying
the averments made in the additional claim statement, it is stated that all the
amended claims have been abandoned and waived by the petitioner and
therefore, the entire amended claim is liable to be rejected as devoid of
merits and barred by limitation.
20. On consideration of the claim and counter claim statements and
the evidence adduced by the parties, the learned Arbitral Tribunal, vide its
award dated 05.04.2022, dismissed both claim petition and counter claim
petition filed by the parties.
21. Challenging the same, both the parties have come forward with
the present Original Petition.
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22. Heard the learned counsel for the petitioner and the learned
Senior counsel for the respondent and perused the entire materials available
on record.
23. Learned counsel for the petitioner, who is the claimant before the
Arbitral Tribunal, would submit that in the present case, the petitioner has
launched a claim for Rs.29,10,00,000/- towards liquidated damages for non-
recovery of Glauber Salt as per Clause 10.3 of the Agreement dated
28.03.2013. The said claim was rejected by the Tribunal on the ground that
there were no pleadings at all and no evidence was produced by the
petitioner to substantiate the same. However, the learned counsel would
submit that the pleadings in respect of the claim were made in para 9(g) of
the claim statement and also the calculations were given for the claim of a
sum of Rs.29,10,00,000/-. He would also submit that para 7.4 of the
Additional Claim Statement also talks about the basis of the forumla under
which, based on the performance, the petitioner is entitled for damages
towards non-recovery of Glauber salt. Clause 3 of the Contract pertains to
the performance guarantee, guaranteeing that recovery of Glauber salt for
different ranges of feed TDS will be as per Annexure V Mass Balance, but
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the same was not considered by the Tribunal. He pointed out that the
Tribunal also ignored the Expert's Report of the PMA which was marked as
Ex.C60-C.V.3, which is crucial evidence to assess the shortfall in recovery
of Glauber salt. The respondent, in fact, guaranteed Glauber salt recovery
should be 5 tonns/hour or 120 tons per day, but there is a shortfall of 97
tonns per day. However, without considering all these aspects and
particularly, the documents produced by the claimant/petitioner, the
Tribunal came to a conclusion as if no document was produced to
substantiate the claim, by the petitioner and rejected the said claim. Hence,
the learned would submit that there is patent illegality committed by the
Tribunal on this aspect while rejecting the claim No.1. Therefore, the award
in respect of claim No.1 is liable to be set aside.
24. As regards claim Nos.2, 3 and 4 are concerned, the same are
pertaining to the additional claims and the Tribunal had rejected the same
on the ground that they were barred by limitation. The learned counsel
would point out that the learned Arbitral Tribunal arrived at the date of
breach as 30.08.2015, as such, the cause of action arose on 01.09.2015,
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thereby, the claimant had time until 29.08.2018 for making claims and the
amended claim application was filed on 25.08.2018 as could be seen from
the affidavit filed in support of the amendment application filed for
additional claims, which was sworn to by the Chairman on 09.08.2018.
However, these additional claims were rejected by the Tribunal vide order
dated 13.10.2018 and the Tribunal has taken into consideration that the date
of ordering the additional claims as the date for making the additional
claims and thereby, held that they were barred by limitation. The learned
counsel for the petitioner would point out that the date on which, the
additional claims were actually made before the Tribunal should be taken
into consideration and not the date of rejecting them by the Tribunal. It is
not in dispute that the amendment application for additional claims was
filed on 25.08.2018 and as such, these additional claims cannot be held as
barred by Limitation. This vital aspect has not been considered by the
Tribunal and even the judgment in “State of Goa versus Praveen
Enterprises” reported in (2012) 12 SCC 581 was wrongly interpreted by the
Tribunal while deciding the additional claims.
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25. The learned counsel would submit that the Tribunal held that
claimant/petitioner is entitled to Rs.7.33,17,179/- towards additional claim
No.3 along with interest at 18% p.a. from the date of breach till the date of
actual payment, however, rejected the additional claims as time barred,
which shows non-application of mind on the part of the Tribunal and as
such, the award passed by the lelarned Tribunal suffers from patent
illegality and also it is opposed to public policy of India and hence, the same
is liable to be set aside.
26. Per contra, learned Senior counsel appearing for the respondent
would submit that on the aspect of limitation, no interpretation is required
as the Tribunal has rightly rejected the claims made by the petitioner. As far
as the claim in respect non-recovery of Glauber salt is concerned, he would
submit that the Tribunal has held that no performance trial run was
conducted and rightly came to the conclusion that the petitioner is not
entitled to claim damages towards non-recovery of Glauber salt. As regards
the counter claim is concerned, the learned counsel would submit that
towards balance price, the respondent had incurred Rs.4,45,21,291/- and
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hence, they are entitled to the same, but the Tribunal has not considered in
proper perspective and erroneously rejected, which is liable to be set aside.
He would submit that as regards the rejection of the claims made by the
petitioner, no interference is required by this Court, however, as regards the
rejection of the counter claim is concerned, he would submit that the
respondent is entitled to Rs.4,45,21,291/- and hence, to this extent, the
award has to be set aside.
27. Upon hearing the learned counsel for the parties and on going
through the entire materials placed on record, it reveals that both parties
have filed Original Petitions since the Tribunal has rejected claims made by
the petitioner as well as the counter claim made by the respondent. As far
as the claim No.1 is concerned, it is pertaining to the liquidated damages
towards non-recovery of Glauber salt to the extent of Rs.29,10,00,000/-.
The Tribunal has rejected this claim on the ground that there was no
pleading and documentary evidence produced by the petitioner and also
performance run has not been conducted, but except mechanical run, based
on which, recovery of Glauber salt could not be determined. The Tribunal
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was of the view that after mechanical trial run, there was no Glauber salt
recovery, however, on a perusal of the terms and conditions as referred to by
the petitioner, it is clear that the respondent is supposed to recover Glauber
salt at each and every stage of mechanical trial run. To substantiate this, the
claimant/petitioner has filed various documents and also adduced evidence.
However, the Tribunal has completely failed to deal with those vital
documents and evidence, but only rejected on the ground that during
mechanical run, no Glauber salt recovery will be available but during the
performance run alone, there will be recovery of Glauber salt. This finding
of the Tribunal appears to be without considering the documentary
evidence. This Court finds that there is substance in the submissions made
by the learned counsel for the petitioner and for this reason, this Court is of
the view that the conclusion arrived at by the Tribunal in respect of Claim
No.1 is liable to be set aside.
28. As regards claim Nos.2, 3 and 4 are concerned, the same have
been been rejected by the Tribunal on the ground that they are barred by
limitation. The petitioner has made these claims by way of amendment
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application as additional claims. While considering the claim No.3, the
Tribunal on merits, has reached at a conclusion that the claimant/petitioner
is entitled for a sum of Rs.7,33,17,179/- along with interest at 18% p.a. from
the date of breach till the date of actual payment, however rejected the other
additional claims on the ground that these claims are barred by limitation. It
is pertinent to note that even the Tribunal held that the respondent
committed the breach of contract on 31.08.2015 and therefore, any claim
should have been made on or before 31.08.2018. It is not in dispute that the
petitioner has filed amendment application seeking to add additional claims
on 25.08.2024. The Tribunal, vide order dated 13.10.2018, allowed the
amendment application. As such, the Tribunal has taken into consideration
that the date of ordering the additional claims as the date for making the
additional claims, i.e. 13.10.2018 and thereby, held that they were barred by
limitation. This view of the Tribunal is contrary to law and incorrect. Once
a claim statement is filed before the Tribunal on a particular day and the
same is taken on file on the same day, that would be the date to be
considered as the date of the claim made. In the event of allowing the
application on later date, it has to be considered that the date of claim is on
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the date of filing the application before the Tribunal and not the date of
passing the order. In the present case, admittedly, the additional claims
were filed by way of amendment application on 25.08.2018 by the petitioner
and though the Tribunal has ordered the application on 31.10.2018, the
claims have to be given effect to from the date of filing, i.e. on 25.08.20218
only. Therefore, this Court is of the view that the additional claims made by
the claimant/petitioner are well within the time and the Tribunal has
committed patent illegality in rejecting these claims as barred by limitation.
Further, the judgment in “State of Goa versus Praveen Enterprises”
reported in (2012) 12 SCC 581 was wrongly interpreted by the Tribunal that
the date of amendment by which the claim was introduced will become the
relevant date for determining the limitation and as such, the Tribunal has
taken into consideration the date of passing the order allowing the
amendment application, i.e. 13.10.2018 as the date of additional claims
taken on file and thereby, erroneously rejected the additional claims as
barred by limitation and hence, this Court is of the view that the same is
liable to be set aside. It is also pertinent to note that even while rejecting
the counter claim, the Tribunal has come to the conclusion that there was a
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breach of contract occurred. When such being the case, this Court is of the
view that the Tribunal has committed patent illegality and therefore, the
entire award is liable to be set aside.
29. As regards the counter claim is concerned, it pertains to a sum of
Rs.4,45,21,291/- made by the respondent towards balance price for the
supply of equipment as per the contract and the Tribunal arrived at the
conclusion that there was a breach occurred at the instance of the
respondent and therefore, rejected the counter claim. However, the Tribunal
has not taken into consideration the various documents and evidence placed
on record by the respondent to establish that the petitioner has terminated
the contract prematurely contrary to the terms of the contract. Therefore, on
this ground, the award of the Tribunal as regards the rejection of counter
claim, is liable to be set aside.
30. In the light of the above discussion, both the petitions filed by the
petitioner as well by the respondent are allowed and the entire award passed
by the learned Arbitral Tribunal, dated 05.04.2022 is set aside.
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31. Accordingly, both the Arbitration Original Petitions filed by the
parties are allowed. No costs.
32. However, it is made clear that since the entire award is set aside
by this Court, for the purpose of any future course of action proposed to be
initiated (if any) by the respective parties, by virtue of Section 43(4) of the
Arbitration and Conciliation Act, 1996, the period, i.e. from the date of
commencement of arbitral proceedings till the date of this order, shall be
excluded in computing the time prescribed by the Limitation Act, 1963.
suk 30.10.2024
Index: Yes/No
Internet: Yes/No
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Arb.O.P.(Com.Div.) Nos.534 and 634 of 2022
KRISHNAN RAMASAMY, J.
suk
Pre delivery Common Order in
Arb.O.P (Com.Div.) Nos.534
and 634 of 2022
30.10.2024
https://www.mhc.tn.gov.in/judis
