TaxTMI 
TaxTMI 
2019 (3) TMI 1981
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....action initiated by the defendant on the plea that it is, inter alia, barred by res judicata. 1.2 It is the plaintiff's stand that the controversy with respect to the reliefs which were claimed or could have been claimed was set at rest between the parties herein, which included its parent company, that is, NCC Limited (in short 'NCC') by virtue of an earlier award dated 24.1.2018. 2. For the sake of convenience, hereafter, I would be referring to the parties in the following manner: 2.1 Plaintiff No. 1, that is, Himachal Sorang Power Private Limited would be referred to as 'HSPL'; Plaintiff No. 2, that is, TAQA India Power Ventures Pvt. Ltd. would be referred to as 'TAQA'; and the Defendant, that is, NCC Infrastructure Holdings Limited would be referred to as 'NCCL'. 2.2 Furthermore, unless the context requires me to state otherwise, the two plaintiffs and the defendant will be, collectively, referred to as parties. 3. Before I proceed further, it may be necessary to delve into the background in which the present proceeding has been instituted. 4. NCCL along with NCC, and an entity by the name: IL&FS Energy Development Company ....
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.... reasons which may have deterred it from taking a step in that direction. (ii) The cost of the Power Project was capped at INR 890 Crores. (iii) Clause 1.1 of the SPA provided that any cost overrun beyond INR 756 Crores would be borne by NCCL and NCC. Importantly, the figure of INR 756 Crores was arrived at after making adjustments qua the following: (a) INR 40 Crores which had been paid by NCCL, NCC and IL&FS as Sellers' Subordinate Loan (SSL) to HSPL. (b) INR 81.67 Crores which was paid by TAQA towards cost of achieving WCD by subscribing to FCDs at the time of initial acquisition of shares. (c) INR 12.33 Crores which IL&FS was required to contribute towards achieving WCD. 9.1 It appears, even though IL&FS did not contribute the aforementioned amount, TAQA agreed to factor in the said amount in order to enable determination of project cost and cost overrun amounts as provided in the SPA. 9.2 Pertinently, if one were to take into account the aforementioned adjustments and add them up with INR 756 Crores, it would result in arriving at a cumulative figure of INR 890 Crores, which was the sum at which, as indicated above, the pr....
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.... to introduction of an additional relief, which was referred to as d(A). 17. The 1st Arbitral Tribunal vide its order dated 12.11.2015, allowed the application, which resulted in the first amendment being brought about by NCCL in its Statement of Counterclaims. Thus, the first amended Statement of Counterclaims was lodged on 3.6.2016. 17.1 The record also shows that NCCL moved yet another application dated 18.7.2016 for amending its counterclaims. Via this application, leave was sought for incorporation of counterclaims referred to as (g), (h) and (i). 17.2 This application was also allowed by the 1st Arbitral Tribunal vide its order dated 2.9.2016. Resultantly, NCCL filed its second amended Statement of Counterclaims dated 7.9.2016. 17.3 HSPL, in turn, was given liberty to file its SOD to the amended counterclaims. Consequently, the SOD to the counterclaims dated 15.9.2015 followed by an additional SOD to the amended counterclaims dated 7.9.2016 was filed by TAQA and HSPL. 18. In the interregnum, while the arbitration proceedings were in progress before the 1st Arbitral Tribunal, TAQA successfully tested and commissioned Unit-1 of the Power Project. 19. The recor....
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....emed to have commenced from 31.12.2018. 30. Alarmed by this development, HSPL and TAQA lodged the instant action, which came up before this Court for the first time on 10.1.2019. On that date, I had issued notice both in the suit as well as in the captioned interlocutory application. Furthermore, I had indicated that any steps taken henceforth in the arbitration proceedings initiated by NCCL would be subject to further orders of this Court in the present proceedings. In addition thereto, I had also laid emphasis on the fact that if any response was issued by HSPL and TAQA to SIAC in the context of their having received a communication that the arbitration proceedings qua them had commenced, the same would be without prejudice to their rights in the instant proceedings. The notice was made returnable on 18.1.2019. 30.1 On 18.1.2019, Mr. Nakul Dewan, Advocate, instructed by Dr. Amit George, Mr. Jai Sahai Endlaw, Ms. Neelu Mohan, Mr. Rishabh Dheer and Mr. Shivansh Soni, Advocates, entered appearance on behalf of NCCL. 30.2 Given the urgency in the matter, NCCL was given time to file its reply by 21.1.2019 vis-a-vis the captioned application. On the other hand, HSPL and TAQA w....
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....rring to paragraphs 23, 25, 27, 28, 47(i)(d) and 132 of NCCL's SOD in the 1st arbitration proceedings. (v)(a) Based on the assertions made in these paragraphs, it was contended that NCCL had argued before the 1st Arbitral Tribunal that if it were to find that NCCL was in breach of its obligations in achieving the WCD and thus, was required to indemnify HSPL and TAQA in respect of Cost Overrun payments, its liability qua them was capped under the SPA and in ascertaining the cap amount, the following had to be taken into account: (a) SSL; (b) Incentive Payments; (c) CER payment; and (d) Security Bond (I). (v) (b) These adjustments had been quantified by NCCL at 30% of the purchase consideration. In this context, it was submitted that out of the four areas of adjustments referred to above, NCCL had, in fact, raised a counterclaim vis-a-vis only two aspects, that is, SSL and refund of encashed Security Bond (I). (v) (c) The argument, thus, was that since the counterclaim was made for SSL and refund of encashed Security Bond (I), NCCL could have made a counterclaim for incentive payments as well, which, as the record would show, it failed to put f....
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....ond (2nd) arbitration proceedings are allowed to continue, HSPL and TAQA would not only incur significant costs, but would also lose its right to choose its nominee Arbitrator, if it fails to act in that behalf by 25.1.2019. In this connection, reference is made to Rule 11.2 of the SIAC Rules. (ix) Furthermore, the fresh claim made for incentive payments is also barred by limitation if regard is had to the following milestones. (x) Under the SPA, the WCD was required to be achieved by 31.3.2013; TAQA stepped in to take over the project on 5.3.2014. NCCL issued its notice to lay claim to incentive payments only on 28.12.2018. (xi) On merits as well HSPL and TAQA have a good case inasmuch as under Clauses 8 and 9 of the SPA, entitlement to incentive payments would arise only upon commissioning of the Power Project; an event which never occurred. Under the SPA, NCCL is to bear the burden of Cost Overrun payments, qua which the 1st Arbitral Tribunal awarded a sum in excess of INR 90 Crores in favour of HSPL. (xii) Given the aforesaid facts and circumstances, the Arbitration Agreement obtaining between the parties, which is incorporated in Clause 14 o....
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....lectricity by the Power Project after the Final Completion Date. It was suggested that incentive payments were envisaged as deferred consideration as there was a difference in the projection of water flow. In this behalf, reliance was placed on the term sheet, the extracts from the due diligence reports, draft project report and e-mails dated 5.4.2012 and 27.3.2012. (iv) In terms of Clause 9.7 of the SPA, if TAQA or HSPL was to issue a Cost Overrun payments notice, then, NCCL was required to make payments within a period of 14 days of the receipt of the said notice. In case NCCL failed to make the payments towards Cost Overrun, HSPL was required to adjust SSL to the extent of the Cost Overrun. If Cost Overrun exceeded the SSL, HSPL had the option to, inter alia, reduce and/or adjust the incentive payment. (v) In this case, though, Cost Overrun payments exceeded the SSL, HSPL neither adjusted the incentive payments from the SSL, nor did it make adjustments to that extent from the cost overrun payments. This omission on the part of HSPL conferred a positive right on NCCL to receive an incentive payments after the Final Completion Date. (vi) The award dated ....
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....tressed that the claim now made for incentive payments would require evidence, which would be different from the evidence laid in the 1st arbitration proceedings. (xii) Furthermore, it was contended that on the basis of the same rationale and logic, it could not be suggested that NCCL had abandoned its claim for incentive payments. The argument was that under the SPA, HSPL and TAQA were obliged to reduce and/or adjust their Cost Overrun claim. (xiii) In this context, what was sought to be put forth was that a mere reference to incentive payments claim in a schedule attached to NCCL's letter dated 2.8.2014 would not constitute an abandonment in law. Abandonment requires a more resolute stand than a mere reference in respect in a pre-arbitration notice. Abandonment cannot occur when a claim has not legitimately arisen. (xiv) The argument advanced on behalf of HSPL and TAQA that the claim for incentive payments had been waived in view of what was stated in communication dated 30.5.2017 was unsustainable for the following reasons: (i) First, TAQA was neither addressed nor mentioned even though it was jointly and/or severally liable in these proceedings. (....
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..... Having heard the learned counsel for the parties and perused the record, to my mind, the central issue which emerges in respect of this matter is as to whether or not NCCL could continue with the 2nd or a new arbitration. It is HSPL's and TAQA's submission that NCCL could have or ought to have raised its claim for incentive payments in the 1st arbitration proceedings. 34.1 The fact that NCCL did not do so, according to HSPL and TAQA, the continuation of the 2nd arbitration is barred by law. In support of this submission, on behalf of HSPL and TAQA, principles such as res judicata, waiver, and abandonment have been put forth. 34.2 It was also contended that the arbitration agreement, which subsisted between the parties, (based on which the 1st arbitration proceedings was commenced, which concluded in an Award), had become inoperative and/or incapable of being performed. 35. This stand taken on behalf of HSPL and TAQA is sought to be supported on facts by adverting to various circumstances, which preceded the commencement of the 1st arbitration proceedings as also on the defences raised in the 1st arbitration proceedings, which were considered and dealt with by the....
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....d (I), if at all, was the same as which pertained to incentive payments. This argument was sought to be buttressed by referring to the fact that the basis for lodging a claim for SSL was the same as that which is now sought to be projected vis-a-vis incentive payments. 38. The record also discloses that NCCL does not dispute the fact that it did refer to incentive payments in Appendix B annexed to its communication dated 02.08.2014 or that it did take a stand vis-a-vis its creditors in the communication dated 30.05.2017 that its claims vis-à-vis HSPL were confined to those which were the subject matter of the 1st arbitration proceedings. 39. The record also shows that the WCD, which was to be achieved by 31.03.2013, could not be achieved. As a matter of fact, there is no dispute that the Power Project did not get completed. What is also not disputed by NCCL is that it was liable to bear the burden of Cost Overrun payments beyond the threshold amount pegged at INR 890 crores, albeit, after adjustments being made in consonance with the provisions of the SPA. 40. Variance in the respective stands taken by parties, thus, falls in a narrow compass, which is that, accordi....
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....nt the affected party to be vexed twice over qua the same cause. [see Kiran Tandon Vs. Allahabad Development Authority, (2004) 10 SCC 745; and Escorts Farms Ltd., Previously Known as M/s. Escorts Farms (Ramgarh) Ltd. Vs. Commissioner, Kumaon Division, Nainital, U.P. & Ors., (2004) 4 SCC 281] 41.4 The doctrine has its roots in public policy. It, therefore, bars raising of an issue in a subsequent proceeding, which is directly and substantially in issue in an earlier proceeding between the same parties or between the parties claiming or litigating under the same title. Pertinently, the decision on which reliance is placed to invoke the doctrine of res judicata should be a decision of a Court of competent jurisdiction. It would, however, matter little if it is a Court of limited jurisdiction, that is, it is not competent to try the subsequent action or the action in which the issue has been raised subsequently. [See explanation VIII to Section 11 of the Code of Civil Procedure, 1908 (in short "CPC")-principles analogous thereto should apply in arbitration proceedings]. 41.5 Since, clearly, as indicated above, there was no decision on incentive payments, the bar, if any, which HS....
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....reement. 44.1 Having said so, Courts have, in certain situations, granted injunctions where proceedings are vexatious and/or oppressive. 45. As indicated above, the width and amplitude available to the Court in an anti-arbitration agreement is much narrower as against where an anti-suit injunction is sought in a matter before it. NCCL has relied upon several documents to demonstrate, as I understand, that there was uncertainty with regard to discharge data and, therefore, there was an element of deferred consideration factored in the agreement obtaining between the parties, which included the incentive payments. Thus, the contention was that only when a clearer picture emerged with regard to water flow data would a cause of action have arisen for lodging a claim for incentive payments. In support of this plea, NCCL has relied upon the following documents: (i) term sheet dated 27.12.2011, executed by TAQA, NCCL and IL&FS; (ii) draft technical due diligence report dated March, 2012, prepared by SNC Lavalin; (iii) technical due diligence report dated August, 2012, prepared by SNC Lavalin; (iv) detailed project report dated April, 2005-Chapter 5; (v) email dated 12.4.2012 address....
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....laint Paragraph 3.3(e) "3.3(e) For the purpose of this suit, it is important to note that (only) if the Defendant achieved Wet Commissioning Date of the Project by 31 March 2013 (amongst fulfillment of other obligations under the SPA) and after achievement of Final Completion Date, if the Project generated more than 400 million kWh annually (none of which were, in fact, achieved), the Defendant would be entitled to Incentive Payment as per a formula provided under the SPA." 47.2 The aforesaid assertion made in the plaint and the observations of the 1st Arbitral Tribunal would show that the failure of NCCL to achieve the WCD by 31.03.2013 would only entail that it would have to indemnify TAQA for consequential losses caused under Clause 11.5 of the SPA. This aspect is also borne out upon reading the findings returned by the 1st Arbitral Tribunal in paragraph 310^2 read with its summary of the result against claim (d)^3 recorded in paragraph 390 of the Award dated 24.01.2018. 48. Therefore, NCCL appears to have pitched its case for a 2nd arbitration proceedings on its interpretation of Clauses 8 and 9 of the SPA read with observations made in paragraph 254(3) and 255 of the ....
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....AQA that NCCL had, in fact, made a claim for incentive payments, as reflected in its communication dated 02.08.2014 (which was addressed to TAQA with a copy to HSPL), would not have me hold that since it was not followed through, it necessarily fell within the ambit of constructive res judicata. At times, initial bravado or, should I say, exuberance with regard to a possible claim that one party wishes to raise against another gets scaled down or excluded or excised upon sober cogitation in the matter. 50. Therefore, the fact that incentive payments were not included, though, counterclaims were amended twice over, would also not carry much weight in determining as to whether or not I should permit continuation of 2nd arbitration proceedings. My approach with regard to the contents of letter dated 30.05.2017 would, thus, be the same. 50.1 The reason that I take this line is on account of the provisions made in Rules 28.2 and 29.1 of the SIAC Rules. Briefly, Rule 28.2 enables an Arbitral Tribunal to rule, inter alia, not only on its own jurisdiction but also with regard to existence, validity or scope of the arbitration agreement. 50.2 Likewise, under Rule 29.1, a party can ....
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.... Power Project on 05.03.2014 may not have much significance. 53. At this juncture, I may refer to judgment of the High Court of Justice Queen's Bench Division Commercial Court in the matter of Nomihold Securities Inc and Mobile Telesystems Finance SA, [2012] EWHC 130 (Comm.). 53.1 The facts obtaining in Nomihold's case are somewhat pari materia to the instant case. In that case, the learned Judge was called upon to rule on two applications. First application was filed by the claimant--Nomihold to injunct the defendant (referred to in the judgment as MTSF) to discontinue or take all steps within its power to discontinue two arbitrations which had been triggered before the London Court of International Arbitration ('LCIA'). Second, to rule upon a counter-application filed by the defendant/MTSF to stay Nomihold's application. Nomihold's case for injunction was pivoted on the fact that there had been a prior arbitration, which had resulted in an Award, and, therefore, the new arbitration triggered by the defendant/MTSF was barred by res judicata or at least on that basis the defendant/MTSF was precluded from raising a fresh claim on the ground of issue est....
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....ew before the SPA Arbitration was brought the evidential basis for its money laundering complaint and could have raised it, had it wished to do so, in the SPA Arbitration from the start; that the First Option Arbitration included all disputes between the parties about whether the SPA was invalid and not performed; and that, had MTSF raised the money laundering complaint, the Tribunal would certainly have decided it. I do not need to decide this difference, I do not have all relevant material about any agreement between the parties that led to the Tribunal assuming the burden of deciding the SPA Issue, and in view of my decisions on the applications, I do not comment upon the merits of it: it might fall to be determined in the New Arbitrations and I should not trample upon such questions. However, in these circumstances I shall say something about the principle of Henderson v. Henderson in the context of arbitral proceedings. 42. The issue between the parties is whether MTSF can raise in the New Arbitrations matters that, as Nomihold asserts, it could and should have raised in the First Option Agreement Arbitration if it wished to raise them at all. The rule that a party wi....
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....ue estoppel and what it calls the principle of Henderson v. Henderson (and might more exactly be called the doctrine of Smith v. Johnson). I cannot see, and it was not suggested, that there is any relevant difference between the ambit of the powers available to tribunals in the New Arbitrations to dispose of claims and the power that a court would have to dispose of complaints on the basis of argument such as Nomihold's re-arbitration complaints including the principle in Henderson v. Henderson. xxxxxxxx 50. As I have said, it is Nomihold's case that the New Arbitrations are part of what it calls MTSF's "enforcement war" to avoid the enforcement of the Award, and to challenge it in ways not contemplated by either the arbitration agreements or the 1996 Act; and that they are collateral attacks on the Award (such as described by Toulson LJ). It submits that, if this is so, the challenge to the New Arbitrations falls within the purview of the court's supervisory jurisdiction to protect the Award and to support its enforcement. I agree with that submission, and so, in my judgment, to the extent that the adjudication of Nomihold's application involves det....
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.... Ansol Limited, [2007] EWHC 226 in which Gloster J assumed that the court has power to grant an order to restrain the continuance of an arbitration, Jackson J said this in J Jarvis & Sons Ltd. v. Blue Circle Dartford Estates Ltd., [2007] EWHC 1262 (TCC) at para 39: "It is clear from two decisions of the Commercial Court (with which I respectfully agree) that the jurisdiction does survive [the enactment of the 1996 Act], but its exercise will be even more sparing than before". 58. I do not, I think, need to set out the observations of Clarke LJ and Lord Phillips CJ to which Aikens J referred. Aikens J recognised that in view of them he should assume that the court may in proper circumstances restrain a party from having a matter arbitrated before a tribunal despite there being no dispute that the parties are subject to a valid and binding arbitration agreement that the tribunal should determine such matters. In view of the decisions of Aikens J, Gloster J and Jackson J, a fortiori I should so assume. However, the authorities emphasise the caution with which the court should intervene to restrain arbitral proceedings, and this is also emphasised by section 1 of the 1996 Act:....
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....bitrations proceed, the tribunals appointed to them will have adequate powers to determine the re-arbitration complaints. I say no more about the complaints themselves other than that they do not seem to me as straightforward as Mr. Beltrami submitted, but the tribunals could adopt procedures to deal with the re-arbitration complaint as a preliminary issue. It is for them to decide whether to do so. xxxxxx 65. I do not overlook the costs that will be incurred in the New Arbitrations, even if Nomihold seeks and obtains a preliminary determination of its re-arbitration complaints, but this concern is to be assessed in the context of the sums involved in this dispute and its history. 66. I have said enough to make it clear that the court would make an order of the kind sought by Nomihold only in unusual circumstances. I am not persuaded that the facts of this case justify the exceptional order sought. I do not consider that it would be just or convenient to make it, and I would decline to exercise my discretion to do so." (emphasis is mine) 53.4 [Also see another judgment of High Court of Justice Queen's Bench Division Commercial Court in the matter of A....
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....nt which was upheld by the Division Bench of Madras High Court in C.G. Holdings Private Limited's case. 54.3 To my mind, these cases are clearly distinguishable. 54.4 Insofar as the judgment in Satish's case is concerned, the same also would have no application. Briefly, the question before the Court was whether an Award given under the Arbitration Act, 1940, which, in effect, brought about partition of immovable property of value exceeding Rs. 100/- required registration under Section 17(1)(b) of the Indian Registration Act, 1908 (in short "Registration Act"). This question was considered by the Supreme Court in the context of two full Bench decisions rendered by the Patna High Court and Punjab and Haryana High Court. There, High Courts took the view that an Award did not require registration under the scheme of Arbitration Act, 1940 unless a decree was passed in terms of the Award. In other words, the Award, according to these judgments, had no legal effect till a decree was passed in terms of the Award. Thus, according to the Full benches of the Patna High Court and the Punjab and Haryana High Court, the Award simpliciter would not require registration as it fell w....
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....10 and 111 of the judgment. 55. In the instant case, I have not been able to come to a conclusion that the arbitration agreement has been rendered null and void, inoperative or incapable of being performed. These expressions were used by Mr. Sethi in the context of very same facts which were put forth to expound the bar of res judicata, waiver, and abandonment. Since, I have held that a trial would be required the same reasoning would hold vis-à-vis this submission as well. Therefore, these judgments would have no applicability to the instant case. 56. The judgment of the Supreme Court in K.K. Modi's case would also not be applicable to the facts obtaining in the instant case. Observations made in paragraph 44 of this judgment, on which reliance was placed, inter alia, advert to re-agitation of issues which have already been decided. The Court, inter alia, observes that disputes which fall within the ambit of doctrine of res judicata, their re-agitation would amount to abuse of the process of the Court. 56.1 The question raised is whether at this juncture it is just and convenient to injunct the 2nd Arbitration proceeding by labeling it as an abuse of process, w....