TaxTMI 
TaxTMI 
2017 (9) TMI 1984
X X X X Extracts X X X X
X X X X Extracts X X X X
....harat Petroleum Corporation Limited (BPCL), Hallworthy Shipping Ltd. (HSL), SA and Silverwave Energy Pte. Ltd. (SEPL) entered into a joint venture with a view to pool their financial and technical capabilities to explore, develop, market etc petroleum products. This joint venture entered into a Production Sharing Contract (PSC) dated 2.3.2007 with the President of India for production and sharing the outcome of a contract area for oil and gas in the proportion as delineated in the "Participating Interest' of the PSC Agreement. Upon execution of the said PSC, the said entities were granted a license to carry out, amongst other things, exploratory activities at the site. It is further pointed out that the contractor under Article 1.27 of PSC i.e. the group of companies would perform its functions through an "Operator" who was defined under Article 7.1 of PSC. Under Article 5.6 of PSC in the event the Contractor failed to complete the Mandatory Work Programme or Minimum Work Programme or both, at the end of the relevant exploration phase or early termination the constituent companies were required to pay to the Government equivalent to the participating interest, to complete the Manda....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s the respondent moved an application to amend the claim to add a sum of Rs.12,17,655/- for outstanding expenses falling to the share of the petitioner for expenditure incurred from July 2015 to December 2016. The application was allowed and the total amount claimed was increased to Rs.2,80,75,628/- plus interest. The petitioner denied the liability to pay relying upon Article 7.6 and 7.7 of the JOA. It also made a counter-claim for refund of Rs.2,24,48,986/-, Rs.24,46,51,891/- and for Rs.75 crores towards loss of profit. 6. Following issues were framed by the learned Arbitrator:- "1. Whether no dispute had arisen between the parties in terms of JOA for arbitration? 2. Whether the claimant was entitled to a sum of Rs.2,54,48,919/- from the Respondent as outstanding amount of cash calls made in terms of Joint Operating Agreement (JOA) where under the respondent was having 11.11% share? 3. Whether the claimant was entitled to interest amount of Rs.14,09,054/- as per the rate contained in the agreement between parties for a period of default up to date of claim? 4. Whether the claimant was entitled to interest from date of claim till the date of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Article 7.7 on continuation of default in payment of the cash call by a particular party the interest of the defaulting party shall be forfeited in favour of the non- defaulting parties. The plea of the petitioner that in view of the said clause the petitioner is absolved of its liability to pay the defaulted call money was rejected. On issues No.10 and 11 the learned Arbitrator rejected the plea of the petitioner that there was any negligence or misconduct on the part of the respondent. Accordingly, issue No.12 was also decided against the petitioner. Regarding issue No.13 where the petitioner sought refund of Rs.24,46,51,891/- paid to Government of India for Joint Operations as being part of the consortium on the ground that the respondent committed breach, the plea was rejected noting that there was no communication from the Government terminating the contract on account of any default or gross negligence on the part of the Operator. The termination took place on account of completion of Phase-I inasmuch as under the PSC Agreement if no commercial discovery was made in the contract area by the end of the exploration period, the contract was to be terminated. On issue No.14 re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....penalty/liquidated damages and the petitioner had to pay Rs.25,90,577/- and Rs.47,14,988/-. 9. I may now deal with the submissions of learned counsel for the petitioner. 10. The first plea that is raised by learned counsel for the petitioner is regarding the authority of the respondent to file a claim petition before the learned Arbitrator. It is the case of the petitioner that the respondent had no authority to file the present proceedings on behalf of other participants/members of the operating committee. 11. A perusal of the issues framed by the learned Arbitrator would show that no such issue has been framed by the learned Arbitrator. 12. Further, a perusal of the reply filed by the petitioner to the claim petition that was filed by the respondent would show that no such plea has also been raised by the petitioner before the learned Arbitrator. Petitioner has chosen to raise this plea for the first time before this Court which is clearly not permissible. 13. For a moment, I may ignore the above aspect. A perusal of the JOA shows that the articles of the said Agreement clearly vest the operator with the power to take all necessary steps for appropriate functioning....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all promptly notify the Parties whenever a default has been remedied. 7.6.2 The Defaulting Party shall-have the right to remedy its default up to the time of transfer of its Participating Interest under Article 7. 7 by payment of the amount due together with interest thereon calculated at the LIBOR rate on the Due Date plus two percent (2%) per annum from and including the Due Date for the Calendar month in which the Due Date falls and thereafter at the LIBOR rate ruling on the first day of each subsequent Calendar month plus two percent (2%), such interest being compounded on a Calendar Monthly basis throughout the period of the default. All interest received by the Operator shall be paid to the Non-Defaulting Parties as well as any funds advanced in respect of the amount in default refunded. 7.7 Continuation of Default 7.7.1 After any default has continued for thirty (30) Business Days from the date of written notice of Default under Article 7.6 and for as long thereafter as the Defaulting Party remains in default on any payment due under this Agreement, the Defaulting Party shall not be entitled to vote on any matter coming before the Operating Committ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng parties who shall assume such forfeited Participating Interest, including the obligations related thereto, in proportion to their Participating Interests or in such other proportion as unanimously agreed by them. The Defaulting Party shall execute such documents as are necessary to transfer its Participating Interest at its sole cost. 7.7.3 Notwithstanding the provisions of Article 7.7.2, in the event that as a result of a forfeiture by the Defaulting Party of a part of its Participating Interest pursuant to the provisions of Article 7.7.2, the remaining Participating Interest of the Defaulting Party falls below ten percent (10%) or as permitted under the Contract, the Non-Defaulting Parties shall assume such Participating Interest of the Defaulting Party in proportion to their Participating Interest or in such other proportion as unanimously agreed by them, subject to the approval of Management Committee/Government. 7.7.4(i) The Defaulting Party shall be deemed to have surrendered its Participating Interest in the Contract and each of the Non-Defaulting Parties shall have the right to request the transfer to it and to acquire, with effect from the date of defa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cipating interest of the petitioner the petitioner ceased to be liable for the dues of the Cash Calls. 19. The learned Arbitrator has rejected the said interpretation of the agreement by the petitioner and noted as follows:- "32. The JOA did provide a mechanism to ensure that the work of exploration does not suffer because of non-providing funds by one of the parties. But that mechanism cannot be used as a defence by the defaulting party for non-payment of its share. If that is permitted, then in all such contracts on the basis of initial results, the parties would stop paying cash calls and the entire burden of continuing the operations would come on the operator and ultimately, these defaulting parties may take a stand in case of non-recovery of oil that they were not liable to pay and in case of recovery of oil, they may come forward and pay the amount with interest as provided and reap the benefits. The contract did not envisage this. Article 7.6.5 makes it abundantly clear that liability of defaulting party does not get discharged on payment of its cash call share by other parties......" 20. It is quite clear that the interpretation which is sought to be made by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to arrive at different conclusion by holding that the arbitral award is against the public policy." 23. Similarly, the Supreme Court in National Highways Authority of India vs. ITD. Cementation India Limited, (2015) 14 SCC 21/(MANU/SC/0490/2015), held as follows: "25. It is thus well settled that construction of the terms of a contract is primarily for an arbitrator to decide. He is entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the contract. The court while considering challenge to an arbitral award does not sit in appeal over the findings and decisions unless the arbitrator construes the contract in such a way that no fair minded or reasonable person could do." 24. Accordingly, there is clearly no merit in the said plea of the petitioner. 25. Regarding the third contention of the petitioner, namely, that a credit of Rs.58,48,919/- has not been made by the respondent in the Statement of Account, it is admitted that no such plea was raised before the learned Arbitrator. It is, at this stage, not possible to raise the said plea. In fact a perusal of the record would....