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of <h1>Court sets aside award for legal errors including misinterpretation of Clause 14</h1> <h3>Gujarat Urja Vikas Nigam Limited and others Versus Tata Motors Limited ) (Originally Tata Finance Limited)</h3> Gujarat Urja Vikas Nigam Limited and others Versus Tata Motors Limited ) (Originally Tata Finance Limited) - TMI Issues Involved:1. Applicability of Clause 14 of the Lease Agreement for Claim Creation of Fund.2. Scope of Reference in Arbitration and Jurisdiction of Arbitrator.3. Prematurity and Limitation of Claims.4. Accord and Satisfaction by Acceptance of Residual Amount.5. Nature of Agreement: Finance Transaction vs. Lease.6. Calculation Errors and Formula for Lease Rentals.7. Application of Contra Proferentem Principle.8. Waiver of Rights under Clause 16.9. Impact of Disallowance of Depreciation on Claim.10. Rate of Interest Awarded.Detailed Analysis:1. Applicability of Clause 14 of the Lease Agreement for Claim Creation of Fund:The learned arbitrator held that Clause 14 was wide in scope and could not be given a narrow interpretation. It provided indemnity against all losses, damages, claims, penalties, expenses, suits, or proceedings of whatsoever nature made, suffered, or incurred. The arbitrator concluded that the claim for the creation of a fund was covered by such an indemnity clause. However, the court found that Clause 14 did not apply to the creation of a fund arising out of a disallowance of a depreciation claim by the Assessing Officer, as it was intended to cover losses related to the equipment's physical condition or legal issues arising from its use.2. Scope of Reference in Arbitration and Jurisdiction of Arbitrator:The arbitrator held that the creation of a fund arose under the same agreement and out of the same set of circumstances as the demand for money. The arbitration clause did not stipulate that only demands specified in the notice invoking arbitration could be referred to arbitration. The court agreed that the arbitration clause did not require a party to state the nature of the claim in the notice invoking arbitration, allowing the respondents to claim for the creation of a fund in the statement of claim despite not mentioning it in the notice.3. Prematurity and Limitation of Claims:The arbitrator held that each successive order disallowing depreciation gave a fresh cause of action, and thus the claim was not barred by limitation. The court, however, found that the cause of action arose when the depreciation was disallowed by the Assessing Officer in 1997 and 1998, and the notice invoking arbitration issued on 17th May 2005 was beyond the limitation period. The court concluded that the claims were time-barred.4. Accord and Satisfaction by Acceptance of Residual Amount:The arbitrator rejected the petitioners' claim that the acceptance of the residual amount constituted an accord and satisfaction. The court found that the respondents accepted the residual value unconditionally during the pendency of the appeal, which amounted to an accord and satisfaction, and thus the respondents could not subsequently raise a demand based on the lease agreement.5. Nature of Agreement: Finance Transaction vs. Lease:The arbitrator concluded that the transaction was a lease, not a finance transaction, based on the terms of the written agreement and the conduct of the parties. The court agreed with the arbitrator's finding that the petitioners had always treated the transaction as a lease and had not claimed ownership of the equipment.6. Calculation Errors and Formula for Lease Rentals:The arbitrator rejected the petitioners' claim of calculation errors, stating that the petitioners were given ample opportunity to present an alternative calculation formula but failed to do so. The court upheld the arbitrator's decision, finding no merit in the petitioners' claim of calculation mistakes.7. Application of Contra Proferentem Principle:The arbitrator held that the principle of Contra Proferentem was not applicable as there was no ambiguity in the lease agreement. The court agreed, finding that the lease agreement was clear and unambiguous, and the principle of Contra Proferentem did not apply.8. Waiver of Rights under Clause 16:The arbitrator found that the respondents were willing to pass on the benefits of the change in tax rates to the petitioners, but the petitioners failed to provide the necessary figures. The court upheld the arbitrator's finding that the respondents' willingness to adjust the lease rentals did not amount to a waiver of their rights under Clause 16.9. Impact of Disallowance of Depreciation on Claim:The arbitrator rejected the petitioners' claim that the respondents suffered no loss due to the disallowance of depreciation. The court agreed with the arbitrator's finding that the disallowance of depreciation had an overall financial impact on the respondents, even if no additional tax was paid.10. Rate of Interest Awarded:The arbitrator awarded interest at the rate of 30% per annum from 12th December 2006 on the principal amount. The court found that the interest rate was exorbitant and that the arbitrator had awarded interest on interest. The court concluded that the award of interest was not justified and set it aside.Conclusion:The court found several patent illegalities in the award, including the misapplication of Clause 14, the allowance of time-barred claims, and the award of exorbitant interest. Consequently, the court set aside the impugned award dated 19th July 2011 in its entirety.
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