TaxTMI 
TaxTMI 
2023 (5) TMI 1319
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....ial Courts, Commercial Division and Commercial Appellate 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, Panjim^4 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 Agreement^5 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 10.09.19....
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....nd incorporated in your power bills. The revised fixed rate shall be applicable 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....
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....ration proceedings under this reference have led to the present appeals. Arbitration proceedings and award 5. After long-drawn proceedings of arbitration with filing of claim, reply and counter claim, rejoinder, sur-rejoinder, 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....
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....enario attracted in view of the above findings is Scenario 22. Accordingly, the Claimant will be entitled to a sum of Rs. 119.32 Crores by way of principal amount and a sum of Rs 158.98 Crores by way of interest for the period up to 31.10.2017 totaling Rs. 278.29 Crores. For the period 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 ....
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.... 5 Whether the arbitration proceedings are bad since there is no any order passed on the application filed by GOG on 30.03.2016 calling upon the claimant to produce documents. In the Negative 6 Whether the interest awarded by the Ld. Arbitrator is exorbitant and against the PPA? In the Negative 7 Whether the findings of the Ld. Arbitrator that 3.78 per 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 Judic....
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.... of Ssangyong Engineering and Construction Co. Ltd. v. NHAI : (2019) 15 SCC 131, wherein principles have been laid down for dealing with challenge to an award Under Section 34 of the Act of 1996 but, thereafter, considered it appropriate to refer to the analysis by a learned Single Judge of the High Court and, after reproducing a few passages from that decision of the learned Single Judge, observed that the submissions would be evaluated with reference to the principles so 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 L....
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.... these amounts by furnishing bank guarantees of a Nationalized Bank. The Respondent was directed to keep alive such bank guarantees until the disposal of this Commercial Appeal and for 15 days thereafter. 198. Though we have partly allowed this appeal, it is unlikely that the Respondent might have to bring back any portion of the amounts withdrawn by it. The Respondent to, therefore, assess this position and deposit such amount, if any, in this Court within 14 days from today. Only if no amount 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.....
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....ribunal did not consider the issue raised regarding non-compliance with clauses 12.1.4 to 12.1.7 of the PPA but, the said clauses related only to Fuel Supply Contract ^8 for Naphtha, and not the alternate fuel. There was a separate Clause i.e., Clause 12.1.9 relating to change in fuel in terms of use of alternate fuel and hence, Clauses 12.1.4 to 12.1.7 were inapplicable. In fact, the Arbitral Tribunal had observed that the Government of Goa had even agreed to the formula on the basis of which the tariff would be computed for alternate 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 h....
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....at the issue before the Arbitral Tribunal was as to whether the Government of Goa was justified in claiming credits for 4 MW in computing tariff heat rate for arriving at the fuel cost variable charges from January, 2009 to 30.08.2014. This claim was made by the Government in reference to the letters dated 02.01.2009 and 19.01.2009. It has been contented that the Arbitral Tribunal, after appreciating the evidence including the said letters, concluded that Government of Goa was exempted from payment of only fixed cost with regard to this 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....
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...., the result has been of wrong answers. Learned Attorney General would submit that the High Court rightly interfered with the order Under Section 34 of the Act of 1996 considering the fact that the Commercial Court did not adjudicate upon the arbitral award and rather framed separate issues like a regular Appellate Court. 10.2. It has been strenuously argued by the learned Attorney General that in the award in question, the Arbitral Tribunal proceeded to rely upon certain correspondence between the parties but, failed to examine the root question 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 ....
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....ing on the question of liability of the Government of Goa to pay Rs. 24.66 crore on account of variable charges relatable to change in fuel from Naphtha to RLNG; and there had not been any finding by the Arbitral Tribunal that the aforesaid clauses were not applicable when there was change to RNLG from Naphtha. It has further been contended that the claimant was obligated to keep the Government updated about its negotiations with fuel suppliers and provide the correspondence with potential suppliers and other drafts. The letter dated 23.05.2013 stated 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 tha....
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....educed. It has been submitted that the failure to do so has resulted in a situation where the Government was charged by the claimant for variable charges on units sold to third parties. This has resulted in a dual profit to the claimant, for having been held entitled to recover variable costs for 4 MW electricity from the State despite not supplying electricity to it; and also being compensated for both fixed charges and variable charges for 4 MW electricity by such third parties. It has further been submitted that the Arbitral Tribunal relied on the letter 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....
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....ly reduced the post-award interest but only modified the amount. It has been further submitted, by relying on NHAI v. M. Hakeem: (2021) 9 SCC 1, that such course of action was not permissible as modification of an award would not be possible Under Section 34 of the Act of 1996. Thus, the award of interest of the Tribunal was liable to be set aside as being patently illegal. 10.9. A few other submissions have also been made by the learned Attorney General with reference to the calculation of the awarded amount. It has been contended that as per the PPA, the claimant 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 Gen....
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....dance with the Rules of law designated by the parties as applicable to the substance of the dispute; (ii) any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules; (iii) failing any designation of the law under Clause (a) by the parties, the arbitral tribunal shall apply the Rules of law it considers to be appropriate given all the circumstances surrounding the dispute. (2) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties 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....
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....side by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.] (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made Under Section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but 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 tr....
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....nt rate of interest prevalent on the date of award, from the date of award to the date of payment. Explanation.-The expression "current rate of interest" shall have the same meaning as assigned to it under Clause (b) of Section 2 of the Interest Act, 1978 (14 of 1978)] xxx xxx xxx The scope of challenge to an arbitral award Under Section 34 and the scope of appeal Under Section 37 of the Act 13. Having regard to the contentions urged and the issues raised, it shall also be apposite to take note of the principles enunciated by this Court in some of the relevant decisions cited by the parties on the scope of challenge to an arbitral award Under Section 34 and the scope of appeal Under Section 37 of the Act of 1996. 13.1. In MMTC Limited (supra), this Court took note of various decisions including that in the case of Associate Builders (supra) and exposited on the limited scope of 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:....
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.... Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award, violation of Section 75 or Section 81 of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality. Additionally, Sub-section (2-A) has been inserted in Section 34, which provides that in case of domestic arbitrations, violation of Indian public policy also includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence. 14. As far as interference with an order made Under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference Under Section 37 cannot travel beyond the restrictions laid down Under Section 34. In other words, the court cannot undertake an independent assessment of the merits 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 ....
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.... commits an error of jurisdiction. This ground of challenge will now fall within the new ground added Under Section 34(2-A). 41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, : (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse." 13.3. The limited scope of challenge Under Section 34 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: "....
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....t arrives at; or(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse. 32. A good working test of perversity is contained in two judgments. In Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath & Sons [1992 Supp (2) SCC 312], it was held: (SCC p. 317, para 7) "7.... It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law."" 13.4. In Delhi Airport Metro Express (supra), this Court again surveyed the case-law and explained the contours of the Courts' power to review the arbitral awards. Therein, this Court not only re-affirmed the principles aforesaid but also highlighted an area of serious concern while pointing out "a disturbing tendency" of the Courts in setting aside arbitral awards after dissecting and re-assessing factual aspects. This Court also underscored the pertinent features and scope of the expression "patent illega....
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....ating the contours of the said expressions. 29. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression "patent illegality". Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression "patent illegality". What is prohibited is for Courts to reappreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as Courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award Under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a Clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself su....
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....wered the said issues. Subsequent events need not be taken into account. (emphasis supplied) 13.5. In the case of Haryana Tourism Ltd. (supra), this Court yet again pointed out the limited scope of interference Under Sections 34 and 37 of the Act; and disapproved interference by the High Court Under Section 37 of the Act while entering into merits of the claim in the following words: "8. So far as the impugned judgment and order passed by the High Court quashing and setting aside the award and the order passed by the Additional District Judge Under Section 34 of the Arbitration Act are concerned, it is required to be noted that in an appeal Under Section 37 of the Arbitration Act, the High Court has entered into the merits of the claim, which is not permissible in exercise of powers Under Section 37 of the Arbitration Act. 9. As per settled position of law laid down by this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India. The award can be set aside Under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to: (a) fundamental policy of Indian Law; or (b) the interest of ....
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....e of interference in an arbitral award by a Court in the exercise of its jurisdiction Under Section 34 of the Act, which is all the more circumscribed in an appeal Under Section 37, we may examine the rival submissions of the parties in relation to the matters dealt with by the High Court. Questions relating to proceedings and procedure 14. It has been argued on behalf of the State that in the arbitration proceedings, it had made an application for appointment of an expert Under Section 26 of the Act but the same was not decided by the Arbitral Tribunal. In our view, the High Court has dealt with this issue in its proper perspective and this baseless objection has rightly been rejected. We find it rather strange that such an objection standing at contradiction to its own stand before the Arbitral Tribunal and against its own amended pleading has at all been projected by the State as a ground of challenge to the award in question. It appears that in the counter claim filed by Government of Goa before the Arbitral Tribunal, initially it was prayed that all transactions and invoices raised by the claimant need to be re-examined through a technical cum financial expert so as to a....
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....Arbitral Tribunal. It is again a Rule of evidence as to whether adverse inference is to be drawn or not; and to what effect. The High Court has dealt with this issue and has held that most of the documents were made available to the Government of Goa. High Court has further held that the other documents sought for by Government of Goa were not made available to it because the claimant had clearly stated that such documents were not available with it at the relevant time or did not exist at the relevant time. It has further been held that in absence of Government of Goa establishing any serious prejudice, there was no breach of principles of natural justice merely because the Arbitral Tribunal had failed to make a formal order on the application seeking production of documents. We are in agreement with the said observations and findings of the High Court. 14.2. Government of Goa's contention that opportunity was not granted by the Arbitral Tribunal to file additional written submission has also been dealt with by the High Court with the finding that sufficient opportunity was given by the Arbitral Tribunal since there were at least two meetings/hearings before the learned Arb....
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....ore it and while focusing on core issue raised before it. 16.2. After taking note of relevant submissions and after having examined the entire documentary evidence, the Arbitral Tribunal returned a clear finding on facts in the following terms: "41. The facts noticed above which are based entirely on the documentary record placed before the Tribunal clearly establish that the proposal made by the Claimant under its letter dated 21st of March 2013 was an offer for supply of energy at a rate based on the formula contained in the aforesaid communication. It was clearly mentioned that the entire PPA and all other terms and conditions shall remain unchanged except for change in calculation of Variable charges in Monthly Tariff. The formula for working out the costs was also described as "Proposed Monthly Variable Charge Formula" A Monthly Sample Calculation based on assumed values of landed cost of oil, and dollar rate, was appended to the proposal to show that the cost would be less than what was being paid by the Respondent. When the Respondent accepted the proposal and responded by its letter of 26th of April 2012 which referred to the cost at the rate of Rs. 8.58 per uni....
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....tenable. On facts, in the decision referred to the Court was concerned with the note of the Revenue Minister in the file, and was not a decision taken by the Cabinet at its meeting. Secondly, in the instant case the decision of the Cabinet was communicated to all concerned officers directing them to act in accordance with the order and report compliance. Pursuant to the said decision, a letter was written by the Respondent to the Claimant accepting the proposal based on variable charge in accordance with the prevailing cost of fuel and dollar. This clearly shows that the Government acted upon the said decision of the Cabinet. 43. For all these reasons, the Tribunal finds that the plea of the Claimant that the Respondent was obliged to pay for the power purchased by it pursuant to the proposal accepted by it, on the basis of invoices prepared and submitted by the Claimant taking into account the variable cost of oil and dollar, must be accepted, and the plea of the Respondent to the contrary, must be rejected. 16.3. Insofar as the contention of State with regard to non-consideration of clauses 12.1.4 to 12.1.7 of PPA is concerned, in our view, the claimant is right in it....
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.... Tribunal, reference to clauses 12.1.4 to 12.1.7 of PPA had obviously been unnecessary. This is coupled with the submissions of the claimant that the definition of "Fuel Supply Contract" in PPA was restricted to a contract entered into between the claimant and a fuel supplier for supply of "Naphtha", and not pertaining to alternate fuel also. For ready reference, we may reproduce the definitions of "Fuel" as also "Fuel Supply Contract" in the PPA which read as under: "'Fuel' means Naphtha or any Alternate Fuel; *** *** *** 'Fuel Supply Contract' shall mean any contract entered into between RSPCL and any Fuel Supplier for the supply of Naphtha pursuant to Clause 12;" 16.5.1. If "Alternate Fuel" is also to be read alongwith "Naphtha" in the aforesaid definition, that would be either re-writing the contract or at least reading something into the contract by stretching the principles of construction of document. This would, in our view, be travelling into the area of such construction of the terms of contract which were not forming the part of the material propositions of fact on which the parties were at variance. A....
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....1.7. The High Court has found this aspect to be a vital issue and non-consideration thereof has been taken to be a patent illegality. It was observed and held, inter alia, as under: "88. According to us, the issue about the applicability and the non-compliance of contractual clauses 12.1.4 to 12.1.7 was one of the most relevant and vital issues which arose before the learned Arbitrator. A substantial claim was made by the Respondent towards variable charges, of which, the fuel component was the most dominant. Ultimately, the learned Arbitrator has made an Award in an amount of Rs. 24.66 crores (approximately) towards variable charges post the switch of the fuel from Naphtha to RLNG. Such a substantial award has been made without even adverting to, much less considering or evaluating the issue raised by the Appellant about applicability and non-compliance with the contractual clauses 12.1.4 to 12.1.7. This amounts to patent illegality because the Award to that extent can be said to have been made ignoring or even disregarding contractual provisions to be found in clauses 12.1.4 to 12.1.7 of the PPA. The Award to this extent will have to be held as vitiated by patent illegal....
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....sly signifies that it ought to be apparent on the face of the award and not the one which is culled out by way of a long-drawn analysis of the pleadings and evidence. Of course, when the terms and conditions of the agreement governing the parties are completely ignored, the matter would be different and an award carrying such a shortcoming shall be directly hit by Section 28(3) of the Act, which enjoins upon an Arbitral Tribunal to decide in accordance with the terms of contract while taking into account the usage of trade applicable to the transaction. As said by this Court in Associate Builders (supra), if an Arbitrator construes the term of contract in a reasonable manner, the award cannot be set aside with reference to the deduction drawn from construction. The possibility of interference would arise only if the construction of the Arbitrator is such which could not be made by any fair minded and reasonable person. 19. The case of SAL Udyog Private Limited (supra) cited by learned Attorney General is an apposite example as to when the principles governing "patent illegality" come into operation. In that case, in the contract concerning supply of Sal seeds, the Respondent-con....
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....nnual basis, right from the date the parties had entered into the first agreement i.e. from 30-8-1979. This fact is also borne out from the specimen copies of the orders filed by the Appellant State with the appeal that amply demonstrate that the cost of the Sal seeds required to be paid by the Respondent Company included "supervision charges" described as "Paryavekshan vyay" in vernacular language. It was only after the Appellant State had terminated the second contract on 21-12-1998, that the Respondent Company raised a dispute and for the first time, claimed refund of the excess amount purportedly paid by it to the Appellant State towards supervision charges incurred for supply of Sal seeds. In our opinion, this is the patent illegality that is manifest on the face of the arbitral award inasmuch as the express terms and conditions of the agreement governing the parties as also the Circular dated 27-7-1987 issued by the Government of Madhya Pradesh have been completely ignored." 19.2. In view of such an error apparent on the face of the record, this Court found the matter to be of patent illegality which was going to the root of the matter and the impugned award, insofar permi....
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....t of the parties which had come into existence and which were binding on both. Viewed thus, coupled with the fact that only the limited dispute was presented for arbitration (i.e., as to whether power was to be supplied on the basis of fixed rate of fuel and fixed rate of currency or on variable charges), the Arbitral Tribunal, in our view, has been justified in focusing on the core issue raised, rather than going astray and entering into such an analysis which was not germane to the issue at hand. 21. For the reasons aforesaid, in our view, no ground for challenge Under Sections 34 or 37 of the Act was made out in relation to the award pertaining to variable charges. Hence, the High Court has not been right in setting aside the award relating to variable charges on the ground of so-called non-consideration of clauses 12.1.4 to 12.1.7 of PPA. 21.1. Putting it in other words, the High Court, even while reminding itself of the limitation of jurisdiction, has committed the same error by extensively dissecting the evidence while assuming that clauses 12.1.4 to 12.1.7 were decisive of the matter without taking a close look at the material propositions which formed the dispute and ....
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....me to a specific finding on interpretation of such terms and conditions that various Supplementary PPAs executed between the parties show that the Rated Capacity of the plant was reduced to 19.8 MW and the obligation of the claimant was restricted to assuring supply upto 19.8 MW without any reference to degradation of such capacity. On considering the material on record, the Arbitral Tribunal held that Government of Goa was not justified in contending that there was any downrating annually of Rated Capacity. In regard to this issue, it is more than apparent that the Arbitral Tribunal had considered the provisions of the contract and had taken a particular view thereupon. The Tribunal said, inter alia, as under: "48. An issue was raised at the stage of arguments relating to the down rating the generating capacity of the plant annually commencing from the first year after Commercial Operation of the plant. Such a plea does not appear to have been raised in the Statement of Defence by the Respondent even though it is contended that down rating a small fraction of generating capacity will have a huge impact on the monthly invoices. Learned Counsel for the Claimant brought to t....
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....aft notification. 51. It is the case of the Claimant that the contracted capacity under the PPA dated 10th of January 1997 was equal to 39,402 kilowatts in the first year of commercial operation and down rated annually thereafter as per original equipment manufacturer's recommendation in the subsequent years. Later, the parties agreed to convert the generating station from Open Cycle into a Combined Cycle generating station of 48 MW capacity. On 10th September 1997, a supplementary PPA was entered into which permitted the Claimant to sell power directly in excess of 39.8 MW to consumers in Goa. After the Claimant commenced commercial operation of the power station on 14th of August 1999, on completion of one year thereafter, a second supplementary agreement was entered into on 20 September 2000 whereunder the Respondent agreed to consent to sale of electricity in full or in part, to the extent of 2000 KW generated at the power station directly to any consumer in Goa. Referring to such other supplementary agreements it was submitted that the earlier definition of the contracted capacity was given a go by, and completely changed. The issue with regard to down rating thus....
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....re had been no down rating of contracted capacity. The Claimant had already submitted OEMs letter in this regard, which is dated 8th November 2005. The parties agreed at the said meeting that the invoices were to be reconciled as per what was stated in the said meeting and all future invoices were to be calculated in the same manner. The minutes of the said meeting dated 5th April 2007 have been placed on record. Thus, the question of down rating of contracted capacity is completely irrelevant. It is not disputed that, based on the minutes of the said meeting and the agreement arrived there at, the invoices for the period April 2004 to April 2007 were reconciled and the reconsideration was duly approved by the Respondent and the payment was made on the basis thereof by the Respondent to the Claimant. All future invoices were raised on the basis of the said agreement arrived at the meeting and the invoices were duly approved by the Respondent and have been paid by the Respondent for the period up to March 2013 and a part of April 2013. In the circumstances, therefore, the issue relating to the down rating of capacity of the plant appears to have been settled between the parties, and....
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....nts suggests that the contractual term of the downrating was either done away with or complied with. This is not a case of either reappreciation of the evidence on record or a case of insufficiency of evidence. This is a case of no evidence. This is a case of ignoring the contractual provision by incorrectly assuming that such provision was amended or deleted. The tentative findings to the contrary are, therefore, ex facie perverse and suffer from patent illegality on the face of the record. The impugned Award, to the extent it rejects the defence of the Appellant on the issue of downrating and proceeds to make an award of Rs. 18.53 crores in favour of the Respondent is liable to be set aside on the ground of perversity and patent illegality." 24.1. In regard to this issue, in our view, the High Court has again travelled beyond its jurisdiction Under Section 37 and rather than remaining within the confines of consideration Under Section 34 of the Act, has entered into the arena which is exclusively within the Arbitrator's domain. What the Arbitral Tribunal has held in regard to this item had exclusively been its view on the evidence on record and the relevant surrounding fac....
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....ew of the evidence before it. If it were an appeal against the award, the approach of the Court could have been different but, not so while examining the award within the confines of Section 34 of the Act. We would hasten to observe in this regard too that even in a regular appeal against a decree of the Trial Court, the Appellate Court would not substitute its own views without specifically recording a finding as to the error in the decision under challenge. In any case, if the approach of the High Court in the present case is countenanced, the result would only be of making every award susceptible to challenge before the Court on those very grounds which are, otherwise, of appeal or revision and which are not permitted by the legislature to be taken Under Section 34 of the Act of 1996. 26. Having found the two major issues dealt with by the High Court not standing within the confines of limited jurisdiction Under Section 34 of the Act of 1996, we may again observe that the approach of the High Court in relation to the other two comparatively minor issues relating to variable charges on 4MW power and netting-out principles is also suffering from the same error, where the High C....
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.... power but, at the same time, retained with them the right to revert back to 19.8 MW supply at any future point of time. With reference to the dealings of the parties, the Arbitral Tribunal has taken a particular view of the matter. It cannot be said that the view as taken by the Arbitral Tribunal was entirely impermissible or implausible. There was no scope for interference by the Court. The award relating to netting-out principle 30. The aspect of netting-out, again, depended on the terms of contract of the parties and the deductions to be drawn from the evidence on record. The Arbitral Tribunal had drawn the particular conclusion on the basis of notes dated 13.09.2014 and 18.09.2014. The Arbitral Tribunal considered the documentary evidence before it, as well as the provisions of the contract relating to supply of backup power by Government of Goa to the claimant when the power station was under shutdown for the period May 2014 to August 2014. The Arbitral Tribunal further referred to the communications which also include the decision of the Government of Goa as to the rate at which power during the shutdown period was to be supplied to the claimant and on this basis, came....
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....rise no question of it being permissible Under Section 37 of the Act. Interest in award 32. It has been argued on behalf of the State that the High Court ought not to have rejected its contention with regard to the interest for pre-reference period since the liability to pay interest would arise only once the amount to be paid has been determined. 32.1. In regard to the question of interest, the High Court has rightly held that the Arbitral Tribunal was justified in following the contractual provisions and the provisions of Section 31(7) of the Act; and has rightly not interfered with the award of interest for the pre-reference period and the period during which the proceedings were pending before the Arbitral Tribunal. In our view, the State is not right in contending that the interest could not have been awarded during the period of reference to the Arbitrator. In regard to this aspect, the submissions to the effect that pre-reference period interest was not based on any compelling reasons and contractual provisions for interest were in terrorem are liable to be discarded, could only be rejected for being not even standing within the periphery of Section 34 of the Act of....
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....was dealing with an International Commercial Arbitration involving rupee as well as euro components. Moreover, in the case of Vedanta Ltd., the rate of interest was reduced in respect of the foreign currency component to bring the interest rate in line with the international rate on the ground that the rate of interest prevailing on the rupee debt in India and on international currency abroad were different and the international rates were lower. Such a situation is not obtaining in the present case. 34.1. The High Court seems to have not considered the relevant factual aspects. On the contrary, as has been submitted before us as well as the High Court, the prevailing interest rate being the prime lending rate of State Bank of India was in the range of 13% to 14% per annum. Thus, the Arbitral Tribunal was justified in granting interest at the rate of 15% per annum post-award. In our view, the Arbitral Tribunal was well within its jurisdiction Under Section 31 of the Act to award interest at the rate of 15% p.a. and there was no justification to reduce the same to 10% p.a. We may observe with respect that the High Court was not exercising any equity jurisdiction so as to resettle....
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....ision clearly in favour of the stand of the claimant. Ld. Advocate General has argued that the cabinet decision was not binding because pursuant to it no any decision was taken by the State Government nor any decision was conveyed to the claimant. Reference was made to judgment in the case of Bachhittar Singh (supra) wherein it is held that unless the cabinet decision is followed by a formal order drawn up by The State Government, it does not have binding effect. Ld. Advocate General also made reference to judgment in the case of Bombay Chemicals Ltd. v. Union of India : 2006(201) ELT 167 Bombay wherein cabinet note was considered on merits but it was held that the cabinet note was only to make budgetary provision. Without prejudice Ld. Advocate General also submitted that even if the cabinet note was to be considered it could at the most be for an amount of Rs. 0.76 paise increase and nothing more than that. In the present case subsequent conduct of GOG in making payments based on variable fuel price shows that they implemented the said cabinet decision. In the present case even if the said cabinet note is considered to be internal note, it will have to be considered because GOG a....
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....hereinabove, a few other submissions made by the learned Attorney General in regard to the calculation of the awarded amount and ancillary aspects do not require elaborate discussion. Fact of the matter remains that nothing of a patent illegality apparent on the face of the award has been pointed out. The submissions essentially are of indicating some alleged errors on the merits of the case which, as noticed, do not fall within the parameters of Section 34 of the Act of 1996. 39. Hence, that part of the impugned judgment and order dated 08.03.2021 as passed by the High Court, which modifies the award dated 16.02.2018 and the order of the Commercial Court dated 12.09.2019, is set aside and consequently, the award in question is restored in its entirety. 40. The appeal filed by the claimant is allowed accordingly and that filed by the State is dismissed. No costs. ^1Hereinafter also referred to as 'the claimant'. ^2Hereinafter also referred to as 'the State' or 'the Government of Goa'. ^3Hereinafter also referred to as 'the Act of 1996' or simply 'the Act'. ^4Hereinafter also referred to as 'the Commercial Court....