TaxTMI 
TaxTMI 
2013 (9) TMI 503
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....ALE Australia Pty Ltd. Since under the agreement, AMCI Australia Pty Ltd. was acting both as the coal producer and the seller and as a result of name being changed upon shareholding of the Holding company‟s changing VALE Australia Pty Ltd. become the producer and AMCI Pty Ltd. the seller of the coal. 2. The litigation has been jointly fought by the two companies for the reason the rights and liabilities of the two entities are joint as per a supplementary agreement dated June 07, 2007. 3. As per the agreement, One Million Metric Ton of coal had to be supplied during the delivery period July 2007 to June 2008. The coal had to be of the specification as in clause 1.1 read with Annexure-II and II-A of the agreement. As per clause 1.2 of the agreement the shipment had to be evenly spread during the delivery period with right in SAIL to postpone deliveries by up to three months. As per clause 2.1 the price fixed was US$ 96.45 per Metric Ton (free on board). The port of loading had to be one of the Australian ports listed in clause 2.1. As per clause 2.2, by mutual consent the parties could extend the time for delivery of the coal. 4. As per clause 7.1 the period of delive....
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.... million MT coal could be supplied in the month of August, October and December. In other words as against 0.5 million MT coal which had to be supplied by December 2007 it was indicated that only 0.3 million MT coal could be supplied. SAIL responded by its letter the next day i.e. on May 19, 2007. It did not agree to the shipment schedule and requested that shipment be effected as per contract which envisaged the One Million MT coal to be shipped by evenly spreading the shipments over 12 months. AMCI responded by e-mail reiterating its inability to effect supplies as per contract and requested that the tentative shipping schedule intimated by it as per its e-mail dated May 18, 2007 be accepted, to which SAIL responded by e-mail protesting it being discriminated, by highlighting that AMCI was supplying coal to other parties as per contractual obligations. Exchange of letters and e-mails continued with AMCI sticking to its position that due to expansion at the port facilities it was unable to book adequate berths and SAIL sticking to its position that if AMCI was fulfilling its contractual obligations qua other purchasers it could well supply the coal to SAIL. 10. While the dialog....
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....chedule is subject to confirmation by CVRD of firm port allocation from DBCT once the port expansion is completed and CVRD is notified in writing by DBCT accordingly. June - Dec 07 200 kt 28 Jan/6 Feb 50 kt Feb 07 TBA Mar 07 TBA Apr 07 150 kt May 07 150 kt Jun 07 150 kt Total: 700 Kt As you may also be aware, the current LT Agreement is for a period of three (3) years with an option for further two (2) years. Unfortunately with the uncertainty surrounding the allocation of firm port capacity by DBCT, CVRD/AMCI is currently unable to confirm what tonnage they could consider for the next calendar year and sincerely request that they may request a deferral of all tonnage commitments for the 2008 and 2009 contract years, with resumption of deliveries in 2010. This is certainly an extraordinary situation, but the uncertainty regarding the port congestion and lack of contract performance by DBCT has lead CVRD and AMCI to have very little confidence in the availability of port capacity in the near to medium term. We sincerely request SAIL‟s understanding and will try to resolve this situation as soon as practicable, but we felt that....
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.... that currently it was unable to supply the coal as per the quality envisaged under the contract. 14. Since letters and e-mails being exchanged was not taking the parties any forward, on April 24, 2008 SAIL requested AMCI to attend the meeting of its Empowered Joint Committee scheduled to be held on May 9, 2008 so that the status of supply of coal could be discussed, to which AMCI responded on April 29, 2008 that it would be useless for it to attend the meeting because it was just not in a position to supply the coal of the quality required. On May 1, 2008 VALE suggested the contract to be foreclosed and reiterated the same request as per its letter dated May 12, 2008. In its letter of May 12, 2008 VALE attached for consideration by SAIL the technical quality analysis certificate of coal for its Broadlea Carborough Mines, (intending supply of similar quantity coal), to which on July 28, 2008 SAIL responded stating that the proposal to supply alternative coal would be considered by its Empowered Joint Committee and requested AMCI and VALE to confirm a date convenient for the meeting to be held. A reminder was sent by the SAIL on September 24, 2008 informing that the meeting of it....
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....ce, parties had agreed that the following substantive issues would be decided by the learned Arbitrator :- "Whether the respondents were in breach of Contract No.217/2007 dated 23.04.2007. a. Whether the time for performance by the Respondents of the First Delivery Period under the Contract has been extended by the Claimant? b. Whether the Claimant had accepted the Respondents‟ promise to supply an alternate quality of coal? c. Whether the Claimant has dispensed with strict performance of the Contract? d. Whether the Claimant has waived and/or is stopped from claiming any remedy for the Respondents‟ alleged nonperformance? e. Whether the Claimant‟s legal notice of 20 January 2009 was properly given and its effect (if any). Risk Purchase Damages f. Whether Para 9 of the GCA requires the Claimant to give prior notice of any contemplated risk purchase or only a notice of negligence or non-performance? g. Whether the Claimant had complied with the requirement to give such notice? h. Whether the Respondents have waived the requirement for such notice? i. Whether the Claimant undertook risk purchase under Para 9 of the GCS? j. Whether th....
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....d AMCI filed an application under Section 33(4) of the Arbitration and Conciliation Act, 1996 pleading therein that the learned Arbitrator had omitted to record that SAIL‟s claim for post award interest had been rejected and thus prayed the same to be recorded, which applications were dismissed vide order dated May 16, 2011 observing therein that since Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 required post award interest to be paid at the rate of 18% per annum, unless otherwise directed, the learned Arbitrator had consciously omitted to make a reference to the post award interest. 20. Two Original Miscellaneous Petitions were filed by VALE and AMCI challenging the award dated March 10, 2011 as also the decision dated May 16, 2011. 21. Vide impugned decision dated March 30, 2012, the learned Single Judge has upheld the award but has set aside the decision dated May 16, 2011 and therefore the Division Bench is seized of three appeals: FAO (OS) No.214/2012 filed by SAIL, FAO (OS) No.210/2012 filed by VALE and FAO (OS) No.215/2012 filed by AMCI. Needless to state SAIL is aggrieved by the view taken by the learned Single Judge that the learned Arbitrato....
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....ent Corporation Vs. Municipal Corporation of Delhi (Para 3) 23. Learned senior counsel Sh.Arvind Nigam urged that the learned Arbitrator has noted in para 119 of the award that SAIL had admittedly not claimed general damages contemplated by Section 73 of the Indian Contract Act, 1872 and the claim was for damages as per para 9 of the General Conditions of the Agreement i.e. risk purchase. It was urged that the law of risk purchase as is well-settled by various judicial decisions in India required:- (i) Serving risk purchase notice on AMCI and VALE. (ii) Giving option to AMCI and VALE to participate at the risk purchase to mitigate loss. (iii) Proof by SAIL of having executed contracts with other suppliers as part of risk purchase. (iv) Proof by SAIL that quantities procured from alternate supplier was towards risk purchase. (v) Proof that quality of coal procured by SAIL as part of risk purchase was similar to the Contracted Coal. 24. It was urged that the learned Arbitrator had made out a new case in favour of SAIL inasmuch as the learned Arbitrator held that SAIL had established the fact that it had purchased 0.8 Million MT coal by increasing the annual suppl....
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....s 2000 IAD (Delhi) 145 Alfa Laval (India) Ltd. Vs. Union of India, 2008 (3) ARBLR 569 (Delhi) Union of India Vs. Peekay Industries, 2009 XAD (Delhi) 486 Flowmore Private Limited Vs. National Thermal Power Corporation 2005 (6) SCC 462 Bhagawati Oxygen Ltd. Vs. Hindustan Copper Ltd. AIR 2000 Bom. 204 Maharashtra State Electricity Board, Bombay Vs. Sterlite Industries had to be applied by the learned Arbitrator; and since this was not done, the award was liable to be set aside. In the absence of a conscious decision being proved to undertake risk purchase, learned senior counsel urged that in terms of Sections 101, 102, 106 and 114 of the Evidence Act, 1872 and as per the law declared in the decisions reported as 2007 (12) SCC 27 Kamakshi Builders Vs. Ambedkar Educational Society & Ors., (1968) 3 SCR 862 Gopal Krishnaji Ketkar Vs. Mohamed Haji Latif and 1977 (1) SCC 133 Narayan Govind Gavate & Ors. Vs. State of Maharashtra & Ors. the award was liable to be set aside because the learned Arbitrator had no option but to draw an adverse inference against SAIL. Lastly it was urged that the mandate of sub-Section 3 of Section 31 of the Arbitration and Conciliation Act, 1996 obliged the lear....
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....id submission succeed, that by itself would be sufficient to set aside the Award dated March 10, 2011. We re-pen the submission : The Award deals with a dispute not falling within the terms of the submission to the Arbitrator. 27. The basis for the submission is that as per Statement of Claim filed by SAIL it was categorically pleaded that it had purchased 753,461 MT coal from alternative suppliers i.e.BHP, Anglo and Peabody and as against that, the learned Arbitrator held that the basis of SAIL‟s claim was a risk purchase effected as per para 9 of the General Conditions of the Agreement. 28. The submission advanced is without any factual or legal basis. In para 17 above we have noted the 21 substantive issues settled between the parties as per the Terms of Reference and suffice would it be to note that issues „f‟ to „l‟ under the heading Risk Purchase Damages would reveal that VALE and AMCI clearly understood that they were to deal with SAIL‟s case as understood to mean that damages claimed by SAIL were on account of a risk purchase. That VALE and AMCI so understood SAIL‟s pleadings is evidenced by the extensive crossexamination effe....
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....the long term supply contracts, parties agree to purchase an agreed quantity of hard coking coal at the agreed price for a period of one year and simultaneously bind themselves to further supplies over the next two to three years, but with the price to be negotiated. The reason seems to be obvious. Hard coking coal cannot be manufactured. It has to be mined. Environmental and other clearances had to be obtained by the miners. Eco-sensitivity, which is a universal phenomenon has led to mining activities being regulated as per the Municipal laws of each countries. Coal mining is as per licenses obtained from the local Government by the miners. Thus, projected demands of buyers have to be pre-known to the miners to enable them to obtain the necessary permission and thereafter create necessary infrastructure to augment mining of coal. The concept of risk purchase has to be understood in this background and we find merit in the submission urged by Shri A.K.Ganguly, learned Senior Counsel for SAIL that pertaining to a contract, any dispute before an Arbitrator requires the same to be decided in accordance with not only the terms of the contract but additionally after taking into account ....
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....t reduced to nil. 31. The second limb of objection to the Award i.e. that the Award is contrary to law can be broken into five sub-heads. Firstly, that the learned Arbitrator, in para 172 of the Award, noted that SAIL had to prove having taken a conscious decision to procure coal under risk purchase. Thereafter, without any evidence to establish the same, in paragraph 178 of the Award the learned Arbitrator concluded that SAIL had made a conscious decision to purchase 0.8 Million MT hard coking coal since approximately said quantity was short supplied. Secondly, the risk purchase case advanced by SAIL changed at different stages at the arbitration. Whereas in the statement of claim SAIL pleaded that it procured 397,543 MT: 100,164 MT; and 207,697 MT coal from BHP, Anglo and Peabody respectively between July 2008 to September 2008 towards risk purchase, no bills of lading or commercial invoice were proved. Qua Anglo evidence led was pertaining to agreement 221/2008 executed on July 30, 2008 under which Anglo agreed to supply 2.2 Million MT of hard coking coal to SAIL for each of the next five years, from which fact it was sought to be urged that the increase was not to cover any ....
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....;s evidence itself establishing that there was no fall in the buffer stock. 32. Before we deal with the five sub-heads of the main second submission, we would highlight that the controversy raised by VALE/AMCI under aforesaid five sub-heads itself demolishes the first submission which we have already rejected as urged by VALE/AMCI i.e. that the Award dealt with a dispute not contemplated by and hence not falling within the terms of the submission to the Arbitrator. 33. From the submissions advanced pertaining to the five subheads under the main head that the Award is contrary to law, it is apparent that the alleged nature of the Award being contrary to law is in reference to the law of evidence. 34. The evidence has been discussed by the learned Arbitrator with reference to the international practice, and we quote para 175 of the Award. It reads as under:- "The Respondents had spent much time in the course of arbitration to build a scenario under which it was suggested that the claimant could not have consciously decided to undertake risk purchase action. It was not disputed that price negotiations for hard coking coal usually take place between BHP Billition Mitsubishi Al....
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....hich we would be discussing further, with more reasons, as we deal with the submissions advanced on the subject of risk purchase notice. Now, it has to be kept in mind that as one crossed over to the next year i.e. the year 2008, SAIL had to ready itself with negotiations to firm up contracts for the supply year July 2008 till June 2009 and one would expect commercial bargains to commence by January 2008 and await market prices to be determined by April of 2008 by when Japanese companies would have concluded their contracts i.e. by April or May 2008 the prices could be firmed up by SAIL. The issue has to be seen from the business efficacy point of view. With many buyers but only a few suppliers, negotiations embrace the quantities to be supplied, the quality of supply, monthly deliveries, schedule of payments etc. and by far the most important : the price. The last i.e. the price would be firmed up after the Japanese companies close their contracts, but that would not mean that other companies do not commence the dialogue. Thus, SAIL was clearly informed by December 2007 that it could consider other sourcing options. The same would obviously include an offer made by VALE/AMCI to su....
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.... manner in which SAIL had worked out the risk purchase quantities. The entire gamut of the evidence including the alleged variations have been noted by the learned Arbitrator. In paragraphs 153 and 154 of the Award the learned Arbitrator has extracted the testimony of the witness of SAIL. The learned Arbitrator has discussed the evidence pertaining to the similarity of the coking coal supplied by BHP, Anglo and Peabody with reference to the testimony of the expert witness Dr.Bristow examined by VALE/AMCI. 37. It is settled law that adequacy or inadequacy of evidence or on which side does the weight of the evidence lead to would not be an exercise permissible to be undertaken by a Court considering objections to an Award under Section 34 of the Arbitration and Conciliation Act 1996. As long as there is some evidence to sustain a finding of fact recorded by Arbitrator the hands of approach must be adopted by a Court seized of objections to an Award. 38. From the very nature of the objections it is apparent that the objector wants this Court to re-appreciate the evidence and re-weigh the probabilities thereof to infer facts; an exercise which we refuse to perform because our doi....
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.... regards the enunciation of law pertaining to waiver of contractual obligations as per Section 63 of the Indian Contract Act, 1872, we do not find any scope to interfere with the Award and similarly as regards interpreting the letter dated December 18, 2007 as constituting waiver, we find no scope to interfere with the finding or even venture to discuss whether any interference is warranted, for the reason a finding of fact if applied correctly to the law by an Arbitrator on a view possible, merely because some other view may emerge is not an exercise permissible before us. In that view of the matter we find it useless to discuss the various decisions relied upon by learned counsel for the objectors. For record we note that pertaining to the issue of waiver the arguments were divided into three sub-heads. The first being that the finding of waiver was contrary to the record i.e. there was no evidence to show waiver. Secondly, the finding of waiver was contrary to the terms of the contract i.e. Clause 17 of the General Conditions of the Agreement as per which no change in respect to the terms of this agreement shall be valid unless the same is agreed to in writing by the parties spe....
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....C 641 National Insurance Co. Ltd. Vs. Mastan & Anr., AIR 1956 Bom. 621 Haridas Mafatlal Gagalbhai Vs. Vijaylakshmi Navinchandra Mafatlal Gagalbhai & Ors., (1975) 1 WLR 1452 Aquis Estates Ltd. Minton & Anr., (1882) VII PC 345 Benjamin Scarf Jardine VS. Alferd George, AIR 1943 Bombay 36 Hanmat Bhimrao Vs. Guruao, (2003) 12 SCC 91 Ganga Retreat & Towers Vs. State of Rajasthan, 2005 (6) SCC 462 Bhagawati Oxygen Ltd. Vs. Hindustan Copper Ltd. and (2010) 4 SCC 753 Karam Kapahi & Ors. Vs. Lalchand Public Charitable Trust & Anr. The facts on which aforenoted submissions were predicated was that at the end of the first delivery period i.e. June, 2008 SAIL had the option to either undertake risk purchase action or to claim complete supplies the contracted quantity of coal and by its letter dated October 22, 2008 a conscious decision was taken by SAIL which was unequivocally intimated to VALE/AMCI that SAIL elected to seek complete supplies of the contracted quantity of coal. Letters dated October 31, 2008, December 01, 2008 and January 20, 2009 continued to express the unequivocal option to elect for supplies to be made. That SAIL never intimated VALE/AMCI of the alleged risk purchase undert....
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....ltaneously avail the opportunity to negotiate the price for future supplies. Under the circumstances we are of the opinion that the issue pertaining to election by SAIL did not even arise for consideration, and merely because the learned Arbitrator has chosen to deal with the same and assuming a wrong conclusion arrived at; applying the doctrine of severability, the Award has to be upheld by ignoring the non-material finding on election by SAIL. 46. The fifth submission advanced was that the finding by the learned Arbitrator on extension of time is contrary to evidence on record. It was urged that in paragraph 78 of the Award, the Tribunal had held that there was nothing to suggest that SAIL had extended time for completion of the contract and thus could not fall back upon risk purchase being made by concluding contracts with other parties when the contract was breached by non-performance by June, 2008. Letters dated October 22, 2008, October 31, 2008 and December 01, 2008 written by SAIL were relied upon. 47. Para 63 of the Award would reveal that the learned Arbitrator has noted that there is an accepted practice of carry over in connection with supply of coal under the lon....
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....k purchase and that the finding in the award and the impugned judgment that VALE/AMCI did not offer any reason or explanation to account for failure to supply the contracted quantity of coal was irrelevant because SAIL has been awarded the amount on account of risk purchase. 51. The arguments are nothing but another facet of the submissions advanced pertaining to risk purchase and for our reasons above, simply highlighting that risk purchase in the instant case has not to be treated as conventionally understood, we reject the submissions. 52. The last contention urged by VALE/AMCI was on the costs awarded by the learned Arbitrator premised on the plea that since SAIL gave up certain claims, at best, proportionate costs should have been awarded. It was urged that the dispute being bona fide, parties should have been left to bear their own costs. The argument is repelled for the reason it fell within the domain of the Arbitrator to decide which party would bear the cost and it is settled law that with respect to discretions exercised by Arbitrators, a Court would not substitute its view. 53. Accordingly, we hold that there is no merit in FAO (OS) No.210/2012 and FAO (OS) 215....