2023 (11) TMI 493 - HC - Customs

Arbitral award upheld in coal supply dispute over BCD concessions and liquidated damages claims

Bombay HC dismissed a petition challenging an arbitral award in a coal supply contract dispute. The Arbitral Tribunal correctly interpreted contract ... Validity of Arbitral Award - non-availment of BCD concession - allegations of serious fraud by the Claimant thereby rendered the dispute non-arbitrable or otherwise - Arbitral Tribunal held that at the higher the allegation in the statement of Defence is a case of simple fraud and not a case of serious allegations of fraud thus held that the claims are arbitrable - time limitation. BCD concession not having been availed of by the Respondent - HELD THAT:- The Arbitral Tribunal has interpreted Clause 5.2 of the Contract as per its plain language and upon such interpretation arrived at a finding that it is apparent from the said Clause read with Clause 5.1 of the Contract that the intent of the parties was to consider BCD distinct from CVD in the Supply Contracts. The said Clause 5.2 is applicable only to BCD concession and not to CVD concession. The Arbitral Tribunal has also considered the notifications which were issued prior to the Supply Contracts and found that no concessional Customs Duty applicable on coal. Clause 5.2 of the Contract was made to cover import of coal under Notification No. 12/2012 and if concessions became available on BCD during the period of the contract to such imports, they would be applicable. In view of the interpretation of the Arbitral Tribunal on Clause 5.2 and that CVD not being covered by the said Clause, it was irrelevant as to when the said Circular had been issued i.e. prior to or during the contractual period. In any event the Arbitral Tribunal had noted that the parties chose not to lead oral evidence and having done so, there was nothing on record to show as to when the said Circular dated 03.10.2013 was issued. There is much merit in the submission of the Respondent that the Petitioner cannot now call back the Circular which according to the Petitioner was not in existence on the date of the execution of the contract. It is settled law that the Arbitral Tribunal is empowered to interpret the contract and the Court cannot interpret contracts for the Arbitrator. The interpretation and construction of a contract is primarily for the Arbitrator. The Arbitrator’s view on the interpretation of the Clauses of the contract, is a possible view and hence calls for no interference under Section 34 of the Arbitration and Conciliation Act, 1996 - Arbitral Tribunal having interpreted the aforementioned clauses which this Court finds is a possible interpretation cannot be a ground of challenge under Section 34 of the Arbitration Act. Restriction upon the Respondent making its claims as per Notice of Invocation dated 31.10.2017 - HELD THAT:- The Arbitral Tribunal has correctly interpreted Section 11 of the Arbitration and Conciliation Act, 1996, as not requiring the Chief Justice or his designate to identify the disputes whilst referred them to the Arbitral Tribunal for adjudication. The Arbitral Tribunal has considered these Claim Nos. 2 to 5 to be arbitrable. The Arbitral Tribunal has appreciated that the Chief Engineer (FMC) has already rejected the Respondent’s Claim Nos. 2 and 3 and hence there could be no question of the Respondent again going to the same Authority for adjudication of its claim - there are no error on the Arbitral Tribunal’s part in adjudicating these claims. The Respondent had also addressed these claims on merits and the Arbitral Tribunal has after considering the Respondent’s defence on these claims arrived at the finding in the impugned award. The Arbitral Tribunal has correctly accepted the contention of the Respondent that the tolerance limit of +/- 2% under Clause 8.7 of the contract cannot independently or on stand alone be applied to the diverted quantity of 80,000 MT since it is a part of the ordered quantity and the tolerance limit of +/-2% necessarily would have to be calculated on the total quantity of coal supplied to the Chandrapur TPS. There is no separate contract for 80,000 MT diverted to Khaperkheda TPS. Thus, the Respondent had made the related deduction under Clause 8.7 of the Chandrapur Contract on the basis that there was no shortage of coal supplied to Khaperkheda TPS. Liquidated Damages - Arbitral Tribunal has held that this issue will no longer arise in view of the finding there was no shortfall of supply of coal more than permissible limits under the supply contracts - HELD THAT:- The deduction effected by the Petitioner by way of liquidated damages were impermissible. I find no error in the Arbitral Tribunal holding that presuming that this issue was to be considered the Petitioner has failed to prove damages suffered as no evidence was produced in this regard. The deduction of Rs. 1.12 crores by way of liquidated damages is under Clause 15.1 of the Chandrapur Contract. There is much merit in the contention on behalf of the Respondent that the Petitioner needs to prove loss caused by alleged breach of short supply beyond permissible limits of Clause 8.7 of the Chandrapur Contract - The finding of the Arbitral Tribunal that damage/loss caused is a sine qua non for the applicability of Section 74 of the Contract Act and in view of there being no proof of any damage / loss, the Petitioner had not suffered any loss cannot be faulted. Time Limitation - HELD THAT:- The Arbitral Tribunal has upon proper appreciation of the material on record rightly held that the claims of the Respondent were within limitation. The Arbitral Tribunal has considered there were part payments made by the Petitioner to the Respondent between October and November, 2015. Thereafter the Chief Engineer (FMC) of the Petitioner had rejected the Respondent’s claim vide letters dated 24.07.2015 and 10.09.2015. The balance payment could have been sought only after joint reconciliation of accounts which were completed by the parties on 24.05.2017 in relation to the Bhusawal Contract and on 22.03.2017 in relation to the Chandrapur Contract. The Notice invoking the arbitration has been issued by the Respondent/Original Claimant on 31.08.2017 - there are no merit in the challenge of the Petitioner to the findings of the Arbitral Tribunal on the issue of limitation. This apart from the settled law that a Court whilst considering a Petition filed under Section 34 of the Arbitration Act cannot re-appreciate evidence. There are no grounds raised in the Arbitration Petition which fall within the acceptable grounds of challenge to an award under Section 34 of the Arbitration and Conciliation Act, 1996. The Arbitration Petition is devoid of any merit - petition dismissed. Issues Involved:1. Recovery of 2% Basic Customs Duty (BCD)2. Deduction of excess quantity supplied at Chandrapur TPS3. Liquidated damages on account of alleged short supply to Khaparkheda TPS4. Short payment under Contract No. 20415. LimitationSummary:Issue 1: Recovery of 2% Basic Customs Duty (BCD)The Petitioner argued that the Arbitral Tribunal erroneously dismissed the reliance on the Circular dated 21.10.2013, which clarified that the BCD was 0% and CVD was 2%. The Tribunal interpreted Clause 5.2 of the contract, determining it applied only to BCD and not CVD. The Tribunal found that the contract's price schedule correctly included 2% BCD and 2% CVD, making a total duty of 4%. The Circular was deemed clarificatory and irrelevant to the contract's terms. The Court upheld the Tribunal's interpretation, stating it was a possible view and thus not subject to interference under Section 34 of the Arbitration and Conciliation Act, 1996.Issue 2: Deduction of Excess Quantity Supplied at Chandrapur TPSThe Petitioner contended that the Respondent supplied excess coal beyond the contractual quantity, considering a tolerance of +/- 2%. The Tribunal interpreted Clauses 8.7 and 8.11, concluding that the tolerance limit applied to the total contracted quantity, not independently to the diverted quantity. The Court found the Tribunal's interpretation was reasonable and upheld it, emphasizing it was not for the Court to re-interpret the contract.Issue 3: Liquidated Damages on Account of Alleged Short Supply to Khaparkheda TPSThe Tribunal found no shortfall in the supply of coal beyond permissible limits, making the deduction of liquidated damages by the Petitioner impermissible. The Tribunal noted that the Petitioner failed to prove any damages suffered due to the alleged short supply. The Court agreed, stating that proving loss is a sine qua non for the applicability of Section 74 of the Contract Act, and without such proof, the deduction was unjustified.Issue 4: Short Payment Under Contract No. 2041The Tribunal found that reconciliation proceedings were not concluded, and the disputed amount was yet to be identified. The Petitioner denied owing Rs. 21,76,555/- under the Bhusawal Contract. The Court did not find any error in the Tribunal's findings on this issue.Issue 5: LimitationThe Petitioner argued that the arbitration notice dated 31.08.2017 was barred by limitation, as the cause of action arose on 19.03.2014. The Tribunal found that part payments were made between October and November 2015, and joint reconciliation of accounts was completed in 2017. Thus, the claims were within limitation. The Court upheld this finding, noting that a Court under Section 34 cannot re-appreciate evidence.Conclusion:The Court dismissed the Arbitration Petition, finding no merit in the challenges raised against the Arbitral Tribunal's award. The Tribunal's interpretations and findings were deemed reasonable and not subject to interference under Section 34 of the Arbitration and Conciliation Act, 1996.