TaxTMI 
TaxTMI 
TaxTMI 
2018 (4) TMI 851
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....eements 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 Coordination Agreement is as follows: "7. Notice to Pr....
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....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. 2000000 as and by way of costs, including the costs of the arbitration proceedings." 6. The Petition filed by the Board under Section 34 of the Arbitration and Conciliation Act, 1996 (for s....
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....he 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 the issuance of notice to proceed respectively. 11. Clause 4 of the Overall Coordination Agreement which deals with Performance Guarantees is as follows: "4. Performance Guarantees 4.1 ANSALDO shall deliver to MPEB within fif....
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.... 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 As payment for ANSALDO'S performance of the supplies and obligations under this Contract, MPEB shall pay to ANSALDO an amount of Seventeen Million Eighty One Thousand (17.081 Million) US Dollars, as per the price breakdown furnished in the Sixth Schedule. 9.2 TERMS OF PAYMENT a) MPEB shall pay to ANSALDO an interest free advance payment "the Advan....
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....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 determination of the dispute raised by the Claimant: "1. Whether the Respondent had supplied the technical documents and information to the Claimants as required by Clause 5.8 (iv) of the Onshore Services Agreement? 2. Whether the Claimants had waived the production of the Letter of Comfort of the Power Finance Corporation as required by Clause 5.6 of the Onshore Supply Contract and Schedule 7? 3. Thereto and Clause 5.14 of the Onshore Services Contract and Schedule 7 the....
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....ach 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 was made only of the strength of the manufacturer's plaque attached to the Units, but this representation and warranty is of far less import than the representation and warranty that the Units had, in fact, operated at 120 MW when operated in accordance with good industry practice. It is an admitted position that no performance test upon commissioning of the Units had been carried out. It is clear upon the evidence that the only record which the Respondent had which showed that the Units had in fact operated at 120 MW were the log sheets of February 23,26, 27, 1983 for Unit Nos.3 and December 29, 30 and ....
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....he 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 their obligations under the contract and, as such, was a substantial breach by the Respondent of the contract." 14. The Arbitral Tribunal determined Issues 2 and 3 in favour of the Claimant by observing that there was no waiver on the part of the Claimant regarding production of the Letter of Comfort. The production of the Letter of Comfort was a fundamental condition of the Agreements and the failure to produce the same was a breach on the part of the Board. The invocation of Bank Guarantees by the Board was found to be improper by the Arbitral Tribunal in its findings on Issues 8 and 9. According to the Tribunal, the Con....
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....he 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 Claimant. He further stated that the Claimant was aware of the fact that the amounts advanced to the Claimant were given by the Power Finance Corporation to the Board. He found fault with the finding of the Arbitral Tribunal that the termination of the Contract by the Board was illegal. 16. Shri Dave highlighted the error committed by Arbitral Tribunal in treating all the Bank Guarantees as furnished in pursuance of Clause 4 of the Overall Coordination Agreement. The conclusion of the Arbitral Tribunal that the invocation of the Bank Guarantee was not proper as it was done prior to the termination of the Contract was challenged by Shr....
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....lace. 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 Co. Ltd. v. General Electric Co. (1994) Supp.1 SCC 644) Patent illegality was added to the above three grounds in ONGC v. Saw Pipes Ltd. (2003) 5 SCC 705. Illegality must go to the root of the matter and incase the illegality is of trivial nature it cannot be held that the award is against the public policy. It was further observed in the said judgment (ONGC v. Saw Pipes (supra)) that an award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. In Delhi Development Authority v. M/s. R.S. Sharma & Co. (2008) 13 SCC 80 it was held that an award can be interfered with by the Court under Section 34 ....
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....tor 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 Court. A reasonable construction of the terms of the contract by the arbitrator cannot be interfered with by the Court. Error of construction is within the jurisdiction of the Arbitrator. Hence, no interference is warranted. f) If there are two possible interpretations of the terms of the contract, the arbitrator's interpretation has to be accepted and the Court under Section 34 cannot substitute its opinion over the Arbitrator's view. Application of the Law 20. The Arbitral Tribunal held that the termination of the contract by the Board on 08.01.2002 was illegal. This finding was on the basis that the Board committed a breach of the contract. The breach of the contract on the part of the Board was due to the failu....
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....bunal 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 of the Letter of Comfort was a fundamental condition of the agreements and the failure to produce the same was a breach by the Board. The above findings on the Letter of Comfort are on appreciation of evidence. We do not see any reason to differ with the said findings. Non-Supply of Documents and Misrepresentation 23. The evidence of Sh. Cesare Ricchetti, Electrical Engineer working with the Claimant is to the effect that he took part in the negotiations which led to the signing of the contract. He deposed that he requested for information from the Station Director of the Board at Amarkantak and Sh. B.S. Chouhan, Member Generation, as to whether Units 3 and 4 were originally designed and constructed to achieve a capacity of 120 MW. The Station Director re....
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.... 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 the information of the person making it, of that which is not true, though he believes it to be true; (2) any breach of duty which, without an intent to deceive, gains and advantage to the person committing it, or any one claiming under him; by misleading another to his prejudice, or to the prejudice of any one claiming under him; (3) causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement. 19. Voidability of agreements without free consent When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist....
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....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 decree on the ground that it was impossible to believe that the Plaintiffs solely relied upon the statement of the Defendant as to the value of the property. It was further held that the Plaintiff could have obtained the value of the property without much trouble. In view of the above facts, the Judicial Commission observed as follows: "Under S.19, Contract Act, the rights given to a party who has entered into a contract under fraud or misrepresentation, are to avoid the contract or to insist on the contract being performed. The section does not entitle the party to insist on an entirely different contract being performed. Moreover, the rights given by S.19 are given only to a party whose consent to the contract was, in fact, caused by the fraud or misrepresentation." The said judgment has no application to the facts of this case. Similarly, Ganga Retreat & Towers Ltd. v. State of Rajasth....
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....onal. 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 Bank Guarantee was improper as it was not preceded by a Notice of Default as contemplated in Clause 16.3 of the Supply Contracts and a subsequent notice of termination under Clause 17.1 of the Supply Contracts. In view of the finding of the Arbitral Tribunal that the Board committed a serious breach of the contract and wrongfully terminated the contract, the Claimant was held to be entitled to return of the amounts for which the Bank Guarantees were given. 32. The Bank Guarantee given on 24.02.2000 was a Performance Bank Guarantee and the Claimant is entitled for return of the amount for which the Bank Guarantee was given. The Arbitral Tribunal, however, failed to take notice of the fact that the other two Bank Guarantees were given for the amounts to be advanced by the Board. In fact, the Board had advanced the said amounts to the Claimants. We are of the opinion that the Claimant is not entitled for return of th....