2021 (11) TMI 1216 - HC - Indian Laws

Arbitrator's rejection of force majeure claim during pandemic upheld under Section 37(2)(b) - no substantial disruption proven

Delhi HC dismissed appeal under Section 37(2)(b) of Arbitration Act 1996 challenging arbitrator's interlocutory order rejecting force majeure claim. Court ... Invocation of force majeure clause - whether the Applicant is liable to pay any escalation on Variable Fee attributable to movement of containers by Rail as per the agreement, especially when the Bank Guarantees furnished by the Applicant were/are not covered any amount other than Fixed Fee and Variable Fee @Rs.405/TEU”? - HELD THAT:- This court has already opined in Dinesh Gupta v. Anand Gupta [2020 (9) TMI 1322 - DELHI HIGH COURT], Augmont Gold Pvt Ltd v. One97 Communication Ltd [2021 (9) TMI 1572 - DELHI HIGH COURT] and Sanjay Arora v Rajan Chadha [2021 (10) TMI 1460 - DELHI HIGH COURT] that the restraints which apply on the court while examining a challenge to a final award under Section 34 equally apply to a challenge to an interlocutory order under Section 37(ii)(b). In either case, the court has to be alive to the fact that, by its very nature, the 1996 Act frowns upon interference, by courts, with the arbitral process or decisions taken by the arbitrator. This restraint, if anything, operates more strictly at an interlocutory stage than at the final stage, as interference with interlocutory orders could interference with the arbitral process while it is ongoing, which may frustrate, or impede, the arbitral proceedings. The pre-eminent consideration, which should weigh with the arbitrator while examining a Section 17 application, is the necessity to preserve the arbitral process and ensure that the parties before it are placed on an equitable scale. The interlocutory nature of the order passed under Section 17, therefore, must necessarily inform the court seized with an appeal against such a decision, under Section 37. Additionally, the considerations which apply to Section 34 would also apply to Section 37(ii)(b). The view, of the learned arbitrator, that no case for injuncting invocation of the bank guarantees by the respondent at that stage existed, does not suffer from any infirmity, let alone patent illegality - No case for interference with the order dated 17th June 2020, therefore, exists. The present case is not even one of non-consideration of the material placed by the appellant. Indeed, Mr. Sibal, very fairly, did not fault the learned arbitrator for not considering the material placed on record. His submission was that the learned arbitrator had not recorded reasons for rejecting the said material. In exercise of my appellate jurisdiction under Section 37(2)(b), it is not convinced that a case for interference with the impugned order, on this ground, exists. The learned arbitrator was clearly alive to the material placed by the appellant, and has seen the said material. He has, therefore, summarized the contentions of the appellant and the respondent, qua the aspect of force majeure. Having done so, the learned arbitrator has held that the additional material placed on record by the appellant did not convince him to revisit his earlier view. The learned arbitrator having opined, prima facie, on this aspect one way, at the interlocutory stage, no case for interference under Section 37(2)(b) can be said to exist. For this reason, therefore, it cannot be said that the impugned order deserves to be set aside merely for want of what Mr. Sibal would call sufficient reasons in dealing with the force majeure plea advanced by the appellant. Conclusion - i) The appellant's invocation of force majeure was unjustified, given that operations continued during the pandemic, and the appellant failed to demonstrate substantial disruption. ii) The learned arbitrator having opined, prima facie, on this aspect one way, at the interlocutory stage, no case for interference under Section 37(2)(b) can be said to exist. There are no reason to interfere in this appeal which is accordingly dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe judgment revolves around several core legal issues:- Whether the appellant was excused from its obligations under the Agreement due to the COVID-19 pandemic, invoking the force majeure clause.- The legitimacy of the invocation and encashment of bank guarantees by the respondent, particularly in light of the appellant's claim that it was not liable to pay escalation on the variable fee for containers transported by rail.- The computation of the Minimum Guaranteed Throughput (MGT) and whether it should be calculated on a monthly or annual basis.- The impact of previous agreements and communications, including a meeting held on 19th February 2013, on the appellant's obligations under the original agreement.2. ISSUE-WISE DETAILED ANALYSISForce Majeure and COVID-19 Pandemic:- Legal Framework: The appellant invoked the force majeure clause of the Agreement, citing the COVID-19 pandemic and government directives, which allegedly disrupted operations.- Court's Interpretation: The Tribunal found that the appellant's operations at ICD, Loni, were exempt from lockdown restrictions per government guidelines, thus not justifying a force majeure claim.- Evidence and Findings: The Tribunal noted that operations continued during the lockdown, as evidenced by container volume data, and the appellant did not demonstrate substantial disruption.- Conclusion: The Tribunal rejected the force majeure claim, noting that the appellant's obligations were not excused by the pandemic.Invocation and Encashment of Bank Guarantees:- Legal Framework: The appellant contested the respondent's invocation of bank guarantees, arguing that it was not liable for escalated variable fees due to Clause 17.0(iv) of the Agreement.- Court's Interpretation: The Tribunal held that the bank guarantees were unconditional and could be invoked unless there was evidence of fraud or irretrievable injustice.- Evidence and Findings: The appellant had paid escalated fees until February 2020 and had agreed to such payments in a 2013 meeting, which the Tribunal found binding.- Conclusion: The Tribunal upheld the invocation of bank guarantees, finding no fraud or special equities to prevent it.Computation of MGT:- Legal Framework: The appellant argued that MGT should be computed annually, not monthly.- Court's Interpretation: The Tribunal noted that the Agreement required MGT to be calculated on a monthly basis, aligning with the respondent's practice.- Conclusion: The Tribunal favored the respondent's computation method, finding it consistent with the contractual terms.Impact of 2013 Meeting:- Legal Framework: The appellant contended that the 2013 meeting did not constitute a binding agreement to pay escalated fees.- Court's Interpretation: The Tribunal found that the appellant's subsequent payments and communications indicated acceptance of escalated fees.- Conclusion: The Tribunal held the 2013 meeting and subsequent actions as binding, reinforcing the obligation to pay escalated fees.3. SIGNIFICANT HOLDINGS- The Tribunal concluded that the appellant's invocation of force majeure was unjustified, given that operations continued during the pandemic, and the appellant failed to demonstrate substantial disruption.- The Tribunal upheld the respondent's invocation and encashment of bank guarantees, emphasizing the unconditional nature of the guarantees and the absence of fraud or irretrievable injustice.- The Tribunal confirmed the respondent's method of computing MGT on a monthly basis, consistent with the Agreement's terms.- The Tribunal found the appellant's agreement to pay escalated fees in the 2013 meeting binding, given the appellant's subsequent actions and communications.- The Tribunal emphasized the limited scope of interference with arbitral decisions, particularly at the interlocutory stage, underscoring the importance of preserving the arbitral process.