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2023 (5) TMI 1319
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....ppellate Divisions of High Courts Act, 2015, the High Court has proceeded to upset the order dated 12.09.2019, as passed by the Principal District & Sessions Judge, North Goa, Panjim4 in dismissing the application filed Under Section 34 of the Act; and has partially set aside the award dated 16.02.2018, as made by the Arbitral Tribunal comprising of the Sole Arbitrator, a former Judge of this Court. Relevant factual aspects and background 4. Shorn of unnecessary details, the relevant factual aspects could be usefully summarised as follows: 4.1. On 10.01.1997, the claimant entered into a Power Purchase Agreement5 with the Government of Goa to commission and operate a power generation station of 39.8 MW capacity for the period 14.08.1999 to 13.08.2014. The power station was to use 'Naphtha' as fuel to generate electricity along with a provision for using 'Alternate Fuel'. The claimant commenced commercial operation on 14.08.1999. 4.2. Various supplementary agreements were entered into between the parties from September 1997 to November 2001. By the First Supplementary Power Purchase Agreement dated 10.09.1997, it was mutually agreed to convert the generating stati....
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....pplicable from 1st April 2013. 4.3.2. On 30.04.2013, the claimant, however, sought a clarification from the Government regarding the formula-based tariff payable for the supply of electricity, inter alia, in the following words: 1. With regard to the price mentioned in our proposal dated 21.03.2013, the tariff of Rs. 8.58/unit is based on the prevailing RLNG price ($17.2/mmbtu) and INR/USD exchange rate (1 $ = Rs 54) and is therefore not fixed. The same shall vary depending upon the fuel price in the market and the INR/USD exchange rate. 4.3.3. It has been the case of the claimant that initially, the Government of Goa agreed to a fixed per unit price but, when it was clarified that the price would not be fixed, the Government agreed to purchase the same considering the prevailing rates of fuel and dollar upto the expiry of the PPA while requiring that for this purpose, documentation showing the price of fuel and dollar be incorporated in the bills raised by the claimant. In this regard, a communication received by the claimant from the Chief Electrical Engineer dated 23.05.2013 has been relied upon. For its relevance, this communication dated 23.05.2013 is reproduced, in extens....
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.... amendment of counter claim, filing of various applications and written submissions, the Arbitral Tribunal ultimately passed the award dated 16.02.2018 whereby it directed the State to pay to the claimant a sum of Rs. 278.29 crore (principal amount) together with interest for the period up to 31.10.2017; to pay further interest from 31.10.2017 at the rate of 15% per annum from the date of award until the date of full payment of the amount including interest as on the date of the award until effective payment/realization; and further clarified that in case the non-claimant would pay the entire amount together with interest within two months from the date of the award, it shall not be liable for payment of interest after the date of the award. 5.1. We shall refer to the findings of the Arbitral Tribunal, to the extent relevant, at the appropriate juncture hereafter. However, to take into comprehension as to what was presented to the Arbitral Tribunal by way of dispute and as to what material points called for determination, it may be noticed that the parties jointly formulated the issues on which the Arbitral Tribunal was required to give its ruling; and the same were duly taken not....
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....d subsequent to 31st October 2017, the Claimant shall be entitled to interest calculated at the same rate as for the period prior to that date, till the date of the award. The Claimant shall also be entitled to payment of interest at the rate of 15% per annum on the above amount from the date of the award till the actual payment of the full amount awarded together with interest. If the full payment of the amount awarded together with interest is made within the period of two months from the date of the award, the Respondent shall not be liable to pay interest for any period subsequent to the date of the award, otherwise, it shall be liable to pay interest at the rate of 15% per annum from the date of the award till the date of payment/realisation in full. In this view of the matter the Tribunal makes the following. AWARD 1. The Respondent shall pay to the Claimant a sum of Rs. 278.29 Crores by way of payment of the principal amount together with interest for the period up to October 31, 2017. 2. The Respondent shall pay to the Claimant interest on the above amount, for the period from October 31, 2017 till the date of the award, calculated at the same rate as for the period p....
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....r unit was a fixed amount for supply of backup power by GOG to the claimant is illegal and contrary to the terms of PPA? In the Negative 8 Whether the claimant could not levy variable charges on 4 MW deducted from rated capacity of 19 MW? In the Negative 9 Whether the claim ought to have been rejected on the ground that the claimant did not consider downrating? In the Negative 10 Whether the arbitral award is arbitrary and perverse and passed contrary to principles of natural justice and hence against the public policy? In the Negative" The appeal Under Section 37 of the Act 7. In challenge to the aforesaid order dated 12.09.2019 as passed by the Commercial Court, the State preferred Commercial Appeal No. 12 of 2019 Under Section 37 of the Act before the High Court of Judicature at Bombay, Goa Bench that has been partly allowed by the High Court by the impugned judgment and order dated 08.03.2021 and thereby, substantial and material parts of the findings in the award in question have been reversed. 7.1. Again, we shall refer to the relevant findings of the High Court at the appropriate stage but, in order to indicate the points taken up for determination by the High C....
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....stated. Be that as it may, thereafter, the High Court dealt with the questions raised by the State as regards the alleged breach of principles of natural justice in point (B) and rejected all such contentions with reference to the record of proceedings as also the pleadings and evidence of the parties. However, the High Court proceeded to disapprove the award in relation to the claims covered by the aforementioned points (C), (D), (E) and (F). Of course, on point (G), in relation to the award of interest for the pre-reference period and the period during which proceedings were pending before Arbitrator, the High Court found no reason to interfere but then, with reference to the decision of this Court in Vedanta Ltd. v. Shenzhen Shandong Nuclear Power Construction Co. Ltd. : (2019) 11 SCC 465, considered it appropriate to reduce the rate of interest to 10% from 15% p.a. In point (H), the High Court found no fault in the computations attached to the award as Schedules 2 and 3 but, in point (I) observed that the Commercial Court only summarised the submissions of the parties and made a brief reference to the award without independent application of mind to the contentions raised. This....
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.... is to be brought back, the Respondent need not keep the bank guarantees alive beyond 15 days from today. 199. Further, if despite our order partly allowing this appeal, the Appellant is still due and payable to the Respondent the amounts over and above those which the Respondent has already withdrawn against bank guarantees, then, obviously, the Respondent need not keep the bank guarantees alive for more than 15 days from today. The Appellant to then deposit the balance amount in this Court within four weeks from today. The Respondent will have the liberty to withdraw such amount, once the same is deposited. 200. The appeal is partly allowed in the aforesaid terms. There shall be no order for costs." Rival Submissions 8. In view of the above, the claimant has approached this Court challenging the judgment and order of the High Court to the extent it sets aside the award partially. The State of Goa, on the other hand, has laid a limited challenge to the judgment of the High Court. We may briefly summarise the principal contentions urged on behalf of the parties. 9. Mr. Parag P. Tripathi, learned Senior Counsel appearing on behalf of the claimant, has made a variety of submis....
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....ernate fuel. According to learned Senior Counsel, the High Court applied an inapplicable clause, while ignoring the fact that all the relevant documents including the price certificate and dollar rate received from PSUs were forwarded along with invoices. Further, the Government of Goa continued to take power from the claimant without dispute or demur. Even otherwise, no issues were raised contemporaneously by the Government of Goa, and the supposed non-compliance of clauses 12.1.4 to 12.1.7 was raised for the first time in the sur-rejoinder before the Arbitral Tribunal. 9.4. As regards downrating amount of about Rs. 18.53 crore, learned Senior Counsel has recapitulated the contention of the Government of Goa before the Arbitral Tribunal that the Rated Capacity was required to be downrated from September 2000 until 13.08.2014 (date of expiry of PPA), on the basis of a draft notification issued by the Ministry of Power, Government of India. Learned Counsel has countered this by relying on the observations of the Arbitral Tribunal that the issue of downrating was irrelevant given the subsequent amendment to the PPA, restricting the assured supply to 19.8 MW as the New Rated Capacity....
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....is 4 MW power permitted to be supplied to the other consumers; and the said letter dated 19.01.2009, in no way, affected the committed power supply by the claimant to the Government. Moreover, the Government had maintained its right to revert to take the said 4 MW power in future with all the terms and conditions of PPA remaining the same; and variable charges billed to the Government for supply to them were as per PPA. According to the learned Counsel, the High Court erroneously re-appreciated the letters to substitute its own view with that of the Arbitral Tribunal. 9.6. With respect to the issue related to supply of backup power by the Government to the claimant in case of a scheduled outage (when the plant was shut between May and August, 2014), the Government claimed its entitlement to 1.25 times the approved rate of Rs. 3.78 per unit which was agreed to in the letter dated 18.09.2014. Learned Senior Counsel has submitted that the Arbitral Tribunal rightly came to the finding that the rate per unit was a fixed amount since determination of average cost of energy had become irrelevant, by relying on office memorandums dated 13.08.2014 and 18.09.2014. According to the learned C....
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....stion as to whether such correspondence had the effect of variation of terms of contract and as to whether such correspondence changed the fundamentals of contract. The learned Attorney General has re-emphasised that the Arbitral Tribunal has not considered the relevant clauses of the contract and this had been a matter of patent illegality. Two decisions of this Court have been relied on in this regard, namely State of Chhattisgarh and Ors. v. Sal Udyog Pvt. Ltd.: (2022) 2 SCC 275 and Associate Builders v. Delhi Development Authority : (2015) 3 SCC 49. Hence, it has been contended that the award would be liable to be set aside on the ground of patent illegality Under Section 34(2A) of the Act of 1996 because an Arbitral Tribunal cannot rewrite the contract between parties and the award was made in ignorance of vital evidence. 10.3. As regards procedural aspects, it has been argued on behalf of the State that there had been clear violation of the principles of natural justice since the application seeking appointment of an expert in terms of Section 26 of the Act was not disposed of by the Arbitral Tribunal, although an order was passed by the Tribunal that it would be decided at ....
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....that all the terms and conditions of the PPA were to remain unaffected and the non-production of FSCs and detailed invoices took the opportunity to object to the same away from the Government. In light of the terms of the PPA, the submission of the claimant that the Government could not have frozen dollar rate and RLNG rate, would be unsustainable. Moreover, it would be wrong to assert that if fuel facilitation charges had not been given to the claimant by the Arbitral Tribunal, the requirement of providing FSCs would be waived off. 10.5. As regards downrating amounting to Rs. 18.53 crore, learned Attorney General has submitted that the Arbitral Tribunal wrongly held that the issue of downrating was resolved between parties on 05.04.2007 and failed to appreciate the relevant contractual provisions concerning downrating. The definition of 'contractual capacity' as defined under the PPA required that downrating be taken into account, and this definition was not amended by the Supplementary PPAs. Therefore, it was not open for the Tribunal to hold that downrating had been given a go-by. Given that the claimant did not produce the OEM recommendations, the State had to rely upo....
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....r dated 19.01.2009 which permitted the claimant to trade 4 MW of electricity to third parties but, failed to observe that this was in response to a previous communication by the claimant in which, the issue of fixed charges was specifically raised. Thus, the letter dated 19.01.2009 cannot be viewed as acquiescence to payment of variable charges on 4MW power; and the finding of the Arbitral Tribunal in this regard had been perverse. 10.7. Learned Attorney General has also submitted that the Arbitral Tribunal has again ignored the contractual clauses mandating netting-out while making an award in the sum of Rs. 2.36 crore. It has been argued that Clause 15 of the Second Supplementary PPA provided that all the backup energy supplied by the Government during an unscheduled or forced outage would be netted-out against energy supplied by the power station to the Government in the subsequent billing period in the ratio of one unit of backup power equal to one and quarter of unit of energy supplied. Both parties had construed this to mean that the claimant would be liable to pay charges for the netted-out energy at the prevailing rate in the proximate billing period. The Arbitral Tribunal....
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....aimant was required to submit its bills according to the forecast period and thereafter for each subsequent financial year; however, the claimant submitted bills for the tariff period which resulted in inflated bills. Further, the Arbitral Tribunal calculated the amount to be awarded based on the supposed mutually agreed upon table of calculations; however, the set of calculations provided by the claimant was disputed by the State. The Tribunal did not advert to the submission that the principal amount to be paid would be Rs. 60.76 crore as opposed to Rs. 70.58 crore claimed by claimant. According to the learned Attorney General, the claimant has resorted to exorbitant billing de hors the contract and the amount payable could not be crystallized on account of the fact that the claimant did not provide details of the electricity sold to third parties so as to ascertain liability, and this documentation was only provided during arbitration proceedings. 11. We have given anxious consideration to the rival submissions and have examined the record with reference to the law applicable. Relevant Statutory provisions 12. Since the present appeals relate to an arbitral award, which was c....
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....ies have expressly authorised it to do so. 10[(3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.] **** **** **** 34. Application for setting aside arbitral award.-(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3). (2) An arbitral award may be set aside by the Court only if-- (a) the party making the application 11[establishes on the basis of the record of the arbitral tribunal that] -- (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains d....
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....ut not thereafter. (4) On receipt of an application Under Sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. 14[(5) An application under this Section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. (6) An application under this Section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in Sub-section (5) is served upon the other party.] **** **** **** 37. Appealable orders.-(1) 15[Notwithstanding anything contained in any other law for the time being in force, an appeal] shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, n....
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.... interference Under Section 34 and further narrower scope of appeal Under Section 37 of the Act of 1996, particularly when dealing with the concurrent findings (of the Arbitrator and then of the Court). This Court, inter alia, held as under: "11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided Under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury [Associated Provincial Picture Houses v. Wednesbury Corporation, : (1948) 1 KB 223 (CA)] ....
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....ts of the award, and must only ascertain that the exercise of power by the court Under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court Under Section 34 and by the court in an appeal Under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings." 13.2. In the case of Ssangyong Engineering (supra), this Court has set out the scope of challenge Under Section 34 of the Act of 1996 in further details in the following words: "37. Insofar as domestic awards made in India are concerned, an additional ground is now available Under Sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of pate....
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....4 of the Act was once again highlighted by this Court in the case of PSA SICAL Terminals (supra) and this Court particularly explained the relevant tests as under: "43. It will thus appear to be a more than settled legal position, that in an application Under Section 34, the court is not expected to act as an appellate court and reappreciate the evidence. The scope of interference would be limited to grounds provided Under Section 34 of the Arbitration Act. The interference would be so warranted when the award is in violation of "public policy of India", which has been held to mean "the fundamental policy of Indian law". A judicial intervention on account of interfering on the merits of the award would not be permissible. However, the principles of natural justice as contained in Section 18 and 34(2)(a)(iii) of the Arbitration Act would continue to be the grounds of challenge of an award. The ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". It is only such arbitral awards that shock the conscience of the court, that can be set aside on the said gr....
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....re-assessing factual aspects. This Court also underscored the pertinent features and scope of the expression "patent illegality" while reiterating that the Courts do not sit in appeal over the arbitral award. The relevant and significant passages of this judgment could be usefully extracted as under: 26. A cumulative reading of the UNCITRAL Model Law and Rules, the legislative intent with which the 1996 Act is made, Section 5 and Section 34 of the 1996 Act would make it clear that judicial interference with the arbitral awards is limited to the grounds in Section 34. While deciding applications filed Under Section 34 of the Act, Courts are mandated to strictly act in accordance with and within the confines of Section 34, refraining from appreciation or reappreciation of matters of fact as well as law. (See Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. [Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., : (2020) 2 SCC 455 : (2020) 1 SCC (Civ) 570], Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd. [Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., : (2022) 1 SCC 75] and Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran [....
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....ers not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression "patent illegality". 30. Section 34(2)(b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject-matter of the award or if the award is in conflict with public policy of India, the award is liable to be set aside. Explanation (1), amended by the 2015 Amendment Act, clarified the expression "public policy of India" and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental p....
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.... to: (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal. None of the aforesaid exceptions shall be applicable to the facts of the case on hand. The High Court has entered into the merits of the claim and has decided the appeal Under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial Court. Thus, the High Court has exercised the jurisdiction not vested in it Under Section 37 of the Arbitration Act. The impugned judgment and order passed by the High Court is hence not sustainable. 13.6. As regards the limited scope of interference Under Sections 34/37 of the Act, we may also usefully refer to the following observations of a 3-Judge Bench of this Court in the case of UHL Power Co. Limited v. State of Himachal Pradesh: (2022) 4 SCC 116: "15. This Court also accepts as correct, the view expressed by the appellate court that the learned Single Judge committed a gross error in reappreciating the findings returned by the Arbitral Tribunal and taking an entirely different view in respect of the interpretation of the relevant....
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.... technical cum financial expert so as to ascertain the correctness of the bills in terms of Section 26 of the Act but, thereafter, the Government itself amended its counter claim, as permitted Under Section 23 of the Act by the Arbitral Tribunal, and dropped this prayer. It was then pleaded by the Government that it had engaged the services of an expert and with his assistance, had reworked the amount which was payable by the claimant to it. The High Court has held that after such deletion of the prayer, it was reasonable for the Arbitral Tribunal to proceed on the basis that the application Under Section 26 of the Act was either rendered infructuous or was abandoned by Government of Goa; and that it had not been able to show any prejudice on account of non-disposal of the application. We are in agreement with the High Court on this score. It is also noticeable that in challenge to the award, the Government of Goa has not agitated the rejection of its counter claim. In fact, there remains no ambiguity as regards the Arbitral Tribunal attending on all the relevant aspects of the matter. In this regard, we may usefully reproduce paragraph 31 of the award where the Arbitral Tribunal s....
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....hearings before the learned Arbitrator where the Government of Goa did neither file nor seek leave to file written submissions in response to the claimant's written clarifications/submissions. We are in agreement with these findings too. 14.3. In fact, the submissions of the aforesaid nature, attempting to find fault with the proceedings of arbitration on such hyper-technical but baseless grounds only show an attempt on the part of the State to somehow question the award and seek interference, irrespective of the principles laid down by this Court. 14.4. In regard to the aforesaid procedural aspects of the matter, the High Court has cautiously taken note of the record of proceedings and has proceeded only within the confines of its jurisdiction to reject these contentions. 15. The question, however, is as to whether the High Court remained within those confines while dealing with the other points of challenge pertaining to the items of claim and consideration of the Arbitral Tribunal in that regard. We may examine the point-wise consideration of the High Court with reference to the applicable principles. The award relating to variable charges on use of alternate fuel 16. T....
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....58 per unit, which was described as the " revised fixed rate", the Claimant clarified the position immediately by stating in its letter of 30th of April 2013 to the Respondent that the price mentioned in the proposal dated 21st of March 2013, was not for a fixed cost of power supplied, and that the same shall vary depending upon the fuel price in the market and the exchange rate. They therefore requested the Respondent to confirm that the tariff was formula based and shall vary with changes in the fuel price in the market and dollar variation. Thereafter it appears that the parties were not able to resolve the differences that surfaced, and ultimately the matter was placed before the Cabinet of the Government of Goa on May 22, 2013. After having considered the matter, the Cabinet took a very clear and categoric decision to purchase power from the Claimant at the rate given in the proposal of the Claimant, which would vary, based on the international price of gas and exchange rate fluctuations. The decision was communicated to all offices concerned with a request to report compliance. On the very next day, the Respondent by its letter dated 23rd of May 2013 confirmed that the Govern....
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....ission that the main issue raised before the Arbitral Tribunal was only as to whether the agreement was to supply power on a fixed rate of fuel price and fixed rate of exchange in terms of US dollar to Indian rupee. 16.4. It might appear that in the latter part of the pleadings, the Government of Goa referred to the aforesaid clauses 12.1.4 to 12.1.7 of PPA but, fact of the matter remains that they were not as such considered by the parties to be forming material propositions of law or facts so as to form the part of the issue before the Arbitral Tribunal. Even on the first principles pertaining to settlement of issues, like those in Order XIV Rule 1 of the Code of Civil Procedure, 1908 18, the Court, while dealing with regular civil suit, would be ascertaining as to upon what material proposition of fact or law the parties are at variance, and thereupon would frame and record the issues on which the right decision of the case appears to depend. The present case had been that of arbitration and, obviously, the Arbitral Tribunal was not obliged to frame issues on each and every fact pleaded or disputed. The Arbitral Tribunal was only expected to arbitrate on the dispute presented t....
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.... the parties had only been as to whether the claimant was to supply energy on a fixed rate of fuel and fixed rate of foreign currency after the parties had agreed to the use of alternate fuel. 16.6. We have only broadly referred to the salient features of the dealings between the parties. In fact, not much dilation and dissection of the record is required because the Arbitral Tribunal has indeed examined all the relevant aspects of the matter in necessary details. 16.7. In any case, all documents which showed the cost at which alternate fuel was procured and the prevailing dollar rate were supported by price certificates forwarded to Government of Goa with each and every invoice, and such certificates had been from Public Sector Undertakings. There is nothing on record to show nor has Government of Goa demonstrated that it had either contemporaneously asked for any documents or had disputed or denied the correctness of such certificates. 16.8. The Arbitral Tribunal has noticed that the decision of the cabinet was produced before it by Government of Goa itself. There is also a finding of fact in the award that the communication dated 23.05.2013 to purchase power at a fluctuating ....
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....ue of applicability and non-compliance with the contractual provisions in clauses 12.1.4 to 12.1.7. 17.2. The High Court has also proceeded to observe and reiterate that interference was being made not because of the Court disagreeing with any interpretation of the contractual clauses by the Arbitrator but because the Arbitrator failed to look into the relevant contractual provisions. The High Court justified its interference while observing as under: "98. According to us, all these predicates are attracted when it comes to impugned Award concerning the variable charges. The interference is by no means, merit-based. Interference is because the Arbitrator in the present case has failed to even advert to much less go into the merits of one of the most vital and relevant issues concerning the applicability and non-compliance with the contractual provisions. The interference is not because the interpretation of the contractual clauses by the learned Arbitrator is wrong or because we disagree with such interpretation. The interference is because the learned Arbitrator failed to even look into the contractual provisions to find out if the same were given a go by post the switch of fue....
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....ract was terminated in accordance with the change in legislation. The Respondent thereafter levied a claim for refund of a sum of about 1.72 crore, allegedly paid in excess to the State. The dispute ultimately led to arbitration and an arbitral award was made in favour of the Respondent which was not interfered with Under Sections 34 and 37 of the Act. 19.1. Therein, the specific ground of challenge by the Appellant-State had been that the Arbitrator ignored the binding term of contract governing the parties relating to recovery of "supervision charges". Such a binding term was brushed aside by the Arbitrator while observing that there was no basis to admit any such "indirect expenses". This Court found that the supervision charges were levied by the State and paid by the Respondent without any demur right from the date parties entered into agreement and it was only after termination of the contract that the Respondent raised a dispute towards supervision charges. It had been a classic case of the Arbitrator ignoring and rather overriding the terms of contract, as would appear from the following observations of this Court with reference to the facts of the case: "23. On a conspe....
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....as quashed and set aside being in direct conflict with the terms of the contract and the relevant circular. This Court held thus: "26. To sum up, existence of Clause 6(b) in the agreement governing the parties, has not been disputed, nor has the application of the Circular dated 27-7-1987 issued by the Government of Madhya Pradesh regarding imposition of 10% supervision charges and adding the same to cost of the Sal seeds, after deducting the actual expenditure been questioned by the Respondent Company. We are, therefore, of the view that failure on the part of the learned sole arbitrator to decide in accordance with the terms of the contract governing the parties, would certainly attract the "patent illegality ground", as the said oversight amounts to gross contravention of Section 28(3) of the 1996 Act, that enjoins the Arbitral Tribunal to take into account the terms of the contract while making an award. The said "patent illegality" is not only apparent on the face of the award, it goes to the very root of the matter and deserves interference. Accordingly, the present appeal is partly allowed and the impugned award, insofar as it has permitted deduction of "supervision charge....
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....ges, the core question before the Tribunal had been as to whether the claimant agreed to supply electricity on fixed charges with fixed rate of foreign currency while using the alternate fuel. This question was essentially to be determined with reference to the new contract that came into existence with exchange of communications between the parties. The Arbitrator precisely decided the matter with reference to, and after analysis of, that evidence. It had neither been a case of the Arbitrator not taking into consideration the terms of contract applicable to the issue at hand nor of any such finding which no fair-minded or reasonable person could have possibly rendered ever. Viewed in the light of core dispute presented to the Arbitral Tribunal by the parties, the submissions of the learned Attorney General, that the Arbitral Tribunal has not examined the question as to whether the correspondence in question resulted in change of fundamentals of contract, do not make out a case for interference because novation of the terms of contract as regards fuel had not been a matter of dispute at all. The core question was as to how the new terms were to operate. The Arbitral Tribunal has pr....
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....uments relating to Original Equipment Manufacturer's (OEM) recommendations towards down rating of generating capacity as envisaged in the definition of "Contracted Capacity" which was required to ascertain the implementation of the down rating of the generating capacity in accordance with the recommendations of the Original Equipment Manufacturer. 49. According to the Respondent in terms of the PPA, the contracted capacity was defined to be 39.402 KW in the first year of commercial operation and down rated annually as per original equipment manufacturer's recommendation in successive years. However, the Claimant did not take into account the down rating factor in any of the bills which it submitted to the Respondent. After the dispute arose, the Respondent observed that the down rating factor ought to have been applied from the year 2000 onwards, which was the second year of commercial operation, in terms of OEM recommendations. It was therefore that the Respondent sought necessary documents from the Claimant as regards the recommendations of the OEM, but the same were not provided, contending that the said documents were not available with the Claimant. In the circumstan....
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.... question of any further down rating as alleged. The parties are bound by the contractual provisions. The various supplementary PPAs executed between the parties clearly show that the rated capacity was subsequently reduced to 19.8 MW and the obligation of the Claimant was restricted to assuring supply up to 19.8 MW without any reference to degradation of such capacity. The Respondent is therefore not justified in contending that there was an alleged down rating annually of the rated capacity. 23.2. The Arbitral Tribunal then considered the documentary evidence produced before it, including a certificate issued by OEM dated 08.11.2005 and Minutes of Meeting dated 05.04.2007, where the issue was settled and all bills till that date were reconciled and future bills were raised on the basis that there was no downrating. This is clear from the following findings in the award in question: "52. What is even more significant is the reliance placed upon the certificate issued by the OEM namely BHEL-GE Gas Turbine Services, Private Limited dated November 8, 2005. It is certified by the OEM that subsequent to the commissioning of the Goa plant of the Claimant recommended inspections of Ga....
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....sue relating to downrating of capacity was settled between the parties and the parties should not be allowed to reagitate the same. 24. As regards this issue of downrating, again, we find that the High Court has found shortcomings in the discussions of the Arbitral Tribunal as regards the meaning and effect of the certificate dated 08.11.2005 and as to whether the claimant could have made any claim on that basis or not. The High Court even proceeded to analyse the minutes of the meeting. It has clearly been a case of value and worth attached to a particular evidence by Arbitral Tribunal, which was considered not satisfactory by the High Court; and rejection of the contention of the Government by the Arbitral Tribunal was found to be erroneous. However, thereafter, the High Court again observed that it was not a case of re-appreciation of evidence but being a case of no evidence, there had been patent illegality. The High Court observed as under: "124. The impugned Award has recorded a finding based on the bald statement in the certificate dated 8th November 2005 and there was no degradation of the plant and further, in the absence of degradation of the plant, the concept of down....
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....observe that even if two views are possible, the Court cannot substitute its own view with that of the Arbitral Tribunal. 25. The questions raised by the learned Attorney General, in relation to the issue concerning downrating, that adverse inference ought to be drawn against the claimant for failure to produce OEM recommendations, are only pertaining to the principles of appreciation of evidence. Of course, in the regular adjudicatory process, the Court may presume existence of certain facts Under Section 114 of the Indian Evidence Act, 1872; and in terms of Illustration (g) thereof, the Court is entitled to draw an inference that the evidence which could be but not produced would, if produced, be unfavourable to the person who withholds it. However, in a given case, while determining the dispute by way of arbitration, whether the Arbitrator draws such adverse inference or not, is essentially a matter of appreciation of evidence; and if not drawing of adverse inference is also permitted to be raised as a ground of challenge Under Section 34, it would open the confines of limited interference in an award; and would carry the propensity of converting the proceedings Under Section 3....
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....ges on 4 MW power 27. The Arbitral Tribunal examined the documentary evidence, viz. letters exchanged between the parties dated 02.01.2009 and 19.01.2009 and came to a finding that State was not justified in its submission that the available capacity of the plant stood reduced. 28. In this item too, the High Court has reinterpreted the said communications dated 02.01.2009 and 19.01.2009 by which parties agreed to the manner of billing for supply of 15.8 MW power out of 19.8 MW capacity of the power station reserved for Government of Goa by permitting the balance 4 MW to be sold to third parties; and the High Court arrived at a different finding of fact on the evidence on record. We may usefully reproduce the summation of the findings by the High Court as regards variable charges on 4 MW power as follows: "137. The circumstance that there was a specific Clause excluding the payment of fixed costs, could not lead to the inference that the Appellant had agreed to bear the variable costs in respect of this 4 MW power, which variable costs were even otherwise not payable by the Appellant to the Respondent in terms of the original PPA or PSA and the supplementary PPAs. If there was a....
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....med that another view is possible, it cannot be said that the Arbitral Tribunal has taken such a view which no fair-minded and reasonable person could have ever taken. 31. The High Court has again justified its interference in this item in the following terms: "148. According to us, the impugned Award on the aspect of netting out is again vitiated by perversity and patent illegality. The note dated 13/8/2014, as well as the communication dated 18/9/2014 on its plain terms, refers only to the determination of a rate of Rs. 3.78 P. KWh. for applying the contractual provisions concerning netting. This note or this communication was necessitated because for the relevant proximate billing period there were no supplies made by the Respondent to the Appellant and therefore there was no ready rate available based on which the contractual provisions could be worked for netting out. Therefore, the Appellant determined the rate of Rs. 3.78 P. KWh. as the base rate for purposes of netting out. There is nothing either in the noting or in the communication dated 18/9/2014 to even remotely suggest that by determining such base rate, the parties intended to give a complete go-by to the clear an....
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....gh Court has relied on the principles of proportionality and has scaled down the rate of interest to 10% p.a. while observing as under: "175. Mr. Bhat handed in a statement indicating the interest rates (Benchmark Prime Lending Rates) of the State Bank of India. For the period 2017-18, the rates indicated range around 13 to 14% per annum. This is no doubt one of the factors to be taken into consideration for determining the prevailing economic conditions when the impugned Award was made. Again, reference is also necessary to the principle of proportionality of the amount awarded as an interest to the principal sums awarded. Having cumulative regard to all the factors referred to above, we feel that in the facts and circumstances of the present case, the award of interest at the rate of 15% per annum is excessive and contrary to the principle of proportionality and reasonableness and the same will have to be scaled down to 10% per annum. In Vedanta Ltd. (supra), the Award was dated 9/11/2017 and the Court awarded interest at the rate of 9% per annum for the INR component. The impugned Award, in our case, was made on 16/2/2018. 34. We are of the view that the aforesaid reduction o....
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....ave not elaborated on the discussions and findings of the Commercial Court in its order dated 12.09.2019. Instead, we have directly dealt with the consideration of the High Court vis-à-vis the award in question. As noticed, the High Court could only be said to have misdirected itself on the major issues concerning merits of the award. However, before concluding, we may observe that it had not been as if the Commercial Court did not examine the material issues arising for determination while dealing with the case in terms of Section 34 of the Act of 1996. 35.1. It is noticed that after taking note of the submissions of parties, the Commercial Court precisely framed the points for determination and then, dealt with every point on the anvil of Section 34 of the Act of 1996. With respect, we do not find the High Court justified in making a comment about framing of points for determination by Commercial Court and then observing that the Commercial Court merely reproduced the findings of the award. The Commercial Court dealing with Section 34 application was not acting as a Court of Appeal. Yet, looking to the long-drawn arguments, the Commercial Court enumerated the issues raise....
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....row scope of "patent illegality" cannot be breached by mere use of different expressions which nevertheless refer only to "error" and not to "patent illegality". We are impelled to reiterate what has been stated and underscored by this Court in Delhi Airport Metro Express (supra) that restraint is required to be shown while examining the validity of arbitral award by the Courts, else interference with the award after reassessing the factual aspects would be defeating the object of the Act of 1996. This is apart from the fact that such an approach would render several judicial pronouncements of this Court redundant if the arbitral awards are set aside by categorizing them as "perverse" or "patently illegal" without appreciating the contours of these expressions. 37. In the passing, we cannot help noticing that in the impugned judgment, the High Court though referred to the principles laid down by this Court in Ssangyong Engineering (supra) but then, reproduced an analysis by a learned Single Judge of the High Court and proceeded to decide the matter with reference to the passages so extracted. With respect, we are of the view that enunciation of this Court ought to have been examin....
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.... stood as under: (3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.". 11 Subs. by Act 33 of 2019, sec 7, for "furnishes proof that" [w.e.f. 30-8-2019, vide S.O. 3154(E), dated 30th August, 2019]. 12Subs. by Act 3 of 2016, Section 18(I), for the Explanation (w.r.e.f. 23-10-2015). The Explanation, before substitution, stood as under: Explanation. -Without prejudice to the generality of Sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81. 13Ins. by Act 3 of 2016, Section 18(II) (w.r.e.f. 23-10-2015). 14Ins. by Act 3 of 2016, Section 18(III) (w.r.e.f. 23-10-2015). 15 Subs. by Act 33 of 2019, sec 8, for "An appeal" [w.e.f. 30-8-2019, vide S.O. 3154(E), dated 30th August, 2019]. 16Subs. by Act 3 of 2016, Section 20, for Clauses (a) and (b) (w.r.e.f. 23-10-2015). Clauses (a) and (b), before substitution stood as under: (a) granting or re....