TaxTMI 
TaxTMI 
2018 (4) TMI 851
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....1999. Thereafter, on 24th August, 1999 four Agreements were signed between the Claimants and the Board viz Overall Coordination Agreement, Offshore Supply Contract, Onshore Supply Contract and Onshore Services Contract. 2. A Bank Guarantee dated 22nd February, 2000 was furnished by the Claimants as per Clause 9.2 (a) of the Onshore Supply Contract for Rs. 9,29,20,000/- (10 per cent of the Onshore Supply Contract price). Another Bank Guarantee was furnished by the Claimants on 23rd February, 2000 as per the stipulation in Clause 9.2(a) of the Offshore Supply Agreement for US $ 1,708,100/-. The above Bank Guarantees were given towards advance payment that was to be made by the Board. On 24th February, 2000, a Performance Bond was executed by the ANZ Grindlays Bank Limited on behalf of the Claimants for Rs. 18,48,00,000/- (10 per cent of the total Contract price) pursuant to Clause 4.1 of the Overall Coordination Agreement. The Board subsequently made advance payments of the amounts equivalent to the two Bank Guarantees dated 22nd February, 2000 and 23rd February, 2000 given by the Claimant. 3. The Zero Date (i.e. effective date of Contract) as per Clause 7 of the Overall Coo....
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....for curing the defaults. The Claimant responded by submitting a representation on 8th January, 2000. Not satisfied with the explanation given by the Claimant, the Board terminated the contract. The Claimant raised a dispute which was referred to Arbitration. The Arbitral Tribunal passed an award in favour of the Claimant on 23rd September, 2004 in the following terms: "1) It is declared that: a) The three Bank Guarantees were wrongfully invoked and encashed by the Respondent. b) The agreements were wrongfully terminated by the Respondent. c) The agreements are voidable at the option of the Claimants and have been avoided by them. 2) The Respondent shall pay to the Claimants: i) the sum of Rs. 39,80,98,429/- with interest thereon at the rate of 12% per annum from 5th July, 2001 till the date of the Award and thereafter until payment or realization. ii) the sum of Rs. 11,14,55,042/- with interest thereon at the rate of 12% per annum from 29th July, 2002, being the date of the claim, till the date of the Award and thereafter until payment or realization. iii) The respondent shall pay to the Claimants the sum of Rs....
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....Guarantees which related to the invocation only on the 'non-fulfillment of contractual obligations', the High Court approved the findings of the Arbitral Tribunal that the Board could not have invoked the Bank Guarantees without proving breach of contractual obligations on the part of the Claimant. Aggrieved by the judgment of the High Court, the Board has filed the above Appeal. The Agreements 9. As stated above, the Contract between the Claimant and the Board pertains to refurbishment of Units 3 and 4 of the Amarkantak Thermal Power Station located in Shadol District of Madhya Pradesh. Four Agreements in all were entered into between the Claimant and the Board. An Overall Coordination Agreement was executed on 24th August, 1999 which provided for three other Agreements which are : (i) Offshore Supply Contract, (ii) Onshore Supply Contract, (iii) Onshore Services Contract. 10. It is necessary to refer to the relevant provisions of the Agreements for a better understanding of the issues involved in this case. As per the Agreements, the target completion period for the first and the second Unit was 18 ½ months and 22 ½ months from....
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....BS, ASME, DIN, Japanese and Russian) (ii) If there are any shortfalls beyond the tolerances, ANSALDO will be provided reasonable time for rectifying the defects, with no financial implications to MPEB. Such reasonable periods will not be considered for computation of the Contractual Delivery Period. (iii) Beyond the occurrence of item (i) and (ii) above, the Indemnity Bank Guarantee can be drawn. 4.3 ANSLDO shall deliver to MPEB a Bank Guarantee (as per attachment to this Co-ordination Agreement) in the sum of 15% of the Total Contract Price no later than the First Unit Completion Date which may be drawn only in the event the Guarantee Parameters for Three Years are not met, with respect to each of Unit No.3 and Unit No.4 during the applicable Guaranteed Period for Three Years. The validity of such Bank Guarantee shall expire at the end of the third year after the date of the Second Unit Completion Date." Clause 9.2 of the Offshore and Onshore Supply Contracts which provides for issuance of Bank Guarantee against submission of advance payment, reads as under: OFFSHORE SUPPLY CONTRACT "9 Contract Price and Terms of Payment 9.1....
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....quipment supplied and any other work performed up to the date of termination which was not previously paid by MPEB; (ii) any cost incurred by ANSALDO after the date of termination incurred as a result of the termination due to fault of MPEB; 17.3 Upon termination of this Agreement, any remaining Equipment for which payment has been received by ANSALDO in the performance of its obligations or delays its performance under this agreement." Representations and warranties on the part of the Board are dealt with in Clause 19.2. Clause 19.2 (vii) which is relevant for the purpose of this case reads as under: "19.2 MPEB represents and warrants to ANSALDO that: .... .... (vii) Each of Unit No.3 and Unit No.4 was designed and constructed to achieve the Operating Parameters, and did in fact operate at 120 MW when operating in accordance with Good Industry Practice." Similar provisions relating to default notice, termination and warranties in the Offshore Supply Contract are there in the Onshore Supply and Onshore Services Contracts as well. Award of the Arbitral Tribunal 12. The Arbitral Tribunal framed the following issues for....
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....What order should the Tribunal pronounce for costs? " 13. The Arbitral Tribunal held that there was misrepresentation on the part of the Board in respect of the capacity of the Plant as well as its operating parameters and breach of a fundamental condition of the contract relating to Letter of Comfort not being furnished. Termination of the contract was found to be bad in law. Issues No.1 and 4 were answered as follows: "Dealing with Issue No.4 first, the terms of the representation and warranty clause needs to be noted. The Respondent "represents and warrants" to the Claimants that "each of Unit Nos.3 and 4 was designed and constructed to achieve the operating parameters and, in fact, operated at 120 MW when operated in accordance with good industry practice". The representation that the Respondent made and warranted was twofold; first, in respect of the operating parameters that the Units were designed and constructed to achieve and, secondly that the Units did, in fact, operate at 120 MW, when operating in accordance with good industry practice. It would appear from the evidence of the Respondent's witness Saxena that the first representation and warranty wa....
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....sire to avoid the contracts and we think that, in the circumstances they are entitled to do so. In so far as Issue No.1 is concerned, the Respondent contracted to make available to the Claimants, free of charge, "all relevant records of the power station and the existing Operations and Maintenance Manual of the power station." Mr. Agnihotri submitted that the words "relevant records" meant such records as were in the possession of the Respondent. We do not find this interpretation acceptable. "All relevant records of the power station" covers each and every record relating to the power station that is relevant for the purpose of the refurbishment thereof. The phraseology used leads to the conclusion that the Respondent was stating that it had in its possession all the relevant records and would make them available to the Claimants, along with the operations and maintenance manual. The evidence on record shows clearly that the Respondent possessed very few of the relevant records of the Units. The failure of the Respondent to supply to the Claimants the relevant records of the Units was very likely to have a material adverse effect on the ability of the Claimants to perform....
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.... the representation and warranties found in Clause 19.2 (vii) of the Agreements, he stated that it cannot be said that there was any misrepresentation on the part of the Board. He placed reliance on the log sheets to show that the plant was running to its capacity of 120 MW. He further submitted that there were about 13 inspections conducted by experts from the Claimants' side and it is inconceivable that they did not know about the capacity and performance of the plant. He argued that all the available records were furnished to the Claimant. According to him, the Claimant had full knowledge about the capacity and the performance of the plant in spite of which they did not perform their part of the Contract for reasons best known to them. Shri Dave proceeded to submit that after a series of meetings and exchange of letters, the Claimant agreed for the Zero Date as 9th March, 2000. After such agreement, the Claimant is said to have waived its right of claiming the Letter of Comfort from the Power Finance Corporation. According to him, the Letter of Comfort was not a fundamental condition of the Contract and it had no bearing on the performance of the obligation on the part of the....
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....ndamental condition which was breached by the Board. He relied upon Clause 22 of both the Supply Contracts to submit that the counsel for the Board was not right in arguing that there was a waiver on the part of the Claimant. He further argued that there is voluminous oral and documentary evidence on record to demonstrate that material was procured and equipment was manufactured for supply as per the terms of the contract. He also stated that the equipment which was specially designed for the Thermal Plants at Amarkantak will be of no use to any other plant. It was only due to the breach on the part of the Board that the supply did not take place. Concluding his submissions, Shri Kamdar submitted that the appeal deserves to be dismissed. Section 34 of the Act - 'Public Policy' 18. It is necessary to refer to the settled law on the scope of Sections 34 of the Act. In this case we are concerned with the point as to whether an arbitral award can be set aside for being in conflict with the public policy of India. An arbitral award can be set aside if it is contrary to (a) fundamental policy of Indian law, or (b) the interest of India, or (c) justice or morality. (Renusagar Power ....
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....i Development Authority (2015) 3 SCC 49. Lack of judicial approach, violation of principles of natural justice, perversity and patent illegality have been identified as grounds for interference with an award of the Arbitrator. The restrictions placed on the exercise of power of a Court under Section 34 of the Act have been analyzed and enumerated in Associated Builders (supra) which are as follows: a) The Court under Section 34(2) of the Act, does not act as a Court of appeal while applying the ground of "public policy" to an arbitral award and consequently errors of fact cannot be corrected. b) A possible view by the arbitrator on facts has necessarily to pass muster as the Arbitrator is the sole judge of the quantity and quality of the evidence. c) Insufficiency of evidence cannot be a ground for interference by the Court. Re-examination of the facts to find out whether a different decision can be arrived at is impermissible under Section 34 (2) of the Act. d) An award can be set aside only if it shocks the conscience of the Court. e) Illegality must go to the root of the matter and cannot be of a trivial nature for interference by a C....
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....a, Superintending Engineer and Sh.Shrivastava, Additional Superintending Engineer of the Board was referred to by the Arbitral Tribunal to hold that they admitted to the fact that there was no waiver to the production of Letter of Comfort in writing by the Claimants. Sh.Saxena, Superintending Engineer of the Board stated in his evidence that Sh.G.Ravinderan made a concession of waiver of production of the Letter of Comfort in a meeting. However, the details of the meeting could not be given by Sh.Saxena. The Arbitral Tribunal refused to accept the point canvassed by the Board relating to waiver on the basis of the evidence of Sh.Saxena. The contents of the letter dated 10.03.2000, written by the Claimant to the Board were examined by the Arbitral Tribunal to conclude that there was no waiver of production of the Letter of Comfort. According to the Arbitral Tribunal, the Claimant did not insist on the Letter of Comfort to be produced as a pre-condition to the Zero Date, which did not preclude to their seeking the same at a later date as per Clause 16.5 of the Overall Co-ordination Agreement and Clause 22 & 23 of the Supply and Services Contracts respectively. The production....
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.... days in December, 1982 and four days in February, 1983, the Arbitral Tribunal was of the opinion that the said records do not show that the Units operated at 120 MW was in accordance with good industrial practice. Moreover, the Tribunal found that there were inconsistencies in the readings recorded in the log sheets. The Arbitral Tribunal concluded that the positive averment by the Board that the Units were, in fact, operating at 120 MW for over a period of 25 years was clearly a misrepresentation. According to the Arbitral Tribunal, the Claimant was entitled to avoid the contract as the consent to the contract was obtained by a misrepresentation. 25. Sh. Dave submitted that the Arbitral Tribunal committed a serious error in concluding that there was misrepresentation on the part of the Board. He also criticized the findings of the Arbitral Tribunal on Section 19 of the contract by relying upon illustration (b) therein. It will be useful to reproduce Sections 18 and 19 of the Indian Contract Act, 1872 which read as under: "18. "Misrepresentation" defined "Misrepresentation" means and includes- (1) the positive assertion, in a manner not warranted by t....
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....perated at 120 MW, if it was found later that the assertion relating to the said capacity and functioning was not true, a clear case of misrepresentation, as per Section 18 of the Contract Act was made out. 28. Mr.Dave relied upon the exception to Section 19. According to the exception, a contract is not voidable if the party whose consent was taken had the means of discovering the truth with ordinary diligence, even if the consent was caused by misrepresentation. He also relied upon illustration (b), which deals with sale of a factory by B on the representation of A that 500 mounds of Indigo are made annually in the factory belonging to A. As B purchased the factory after examining the accounts of the factory, the contract was not voidable on account of A's misrepresentation. Sh. Dave relied upon a judgment of the Full Bench of the Judicial Commissioner's Court, Nagpur, in (Hazi) Mahomad Hazi Wali Mahomad v. Ramappa AIR 1929 Nagpur 254. In that case, the Defendant in the suit represented to the Plaintiff that the value of the property was about Rs. 9,000/-. Jackson A.J.C. held that even if such a statement was made by the Defendant, the Plaintiff was not entitled for a de....
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....the statement of claim i.e. Rs. 11,14,55,042/- is on the basis of appreciation of evidence. We have no hesitation in approving the said finding of fact of the Arbitral Tribunal. Ext. FF- Refund of amounts of Bank Guarantees 31. The Claimants furnished three Bank Guarantees. Two Bank Guarantees dated 22.02.2000 and 23.02.2000 were for Rs. 9.29 crores and US $ 1,708,100/- towards the advance payment to be paid by the Board. The third Bank Guarantee was given by ANZ Grindlays Bank, New Delhi on behalf of the Claimant for Rs. 18.48 crores which was towards performance guarantee under Clause 4.1 of the Overall Coordination Agreement. The Bank Guarantees dated 22.02.2000 and 23.02.2000 were in terms of Clause 9.2 of the Onshore and Offshore Supply Contracts respectively. All the three Bank Guarantees were invoked by the Board on 23.06.2001. The Bank Guarantees given on 22.02.2000 and 23.02.2000 were conditional. The condition for invocation of such Bank Guarantees was 'non-fulfillment of the contractual obligations by the debtor'. The third Bank Guarantee of 24.02.2000 was an unconditional Bank Guarantee. The Arbitral Tribunal was of the opinion that the invocation of the Ban....