EFS FACILITIES SERVICES (INDIA) PVT. LTD. (FORMERLY KNOWN AS DALKIA INDIA PVT. LTD.) Vs INDEEN BIO POWER LIMITED
O.M.P. (COMM.) 440 /2020 Page 1 of 94 $~12 (original side)
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on : 10th
Pronounced on : 4 August, 2020
th
January, 2021
+ O.M.P. (COMM.) 440 /2020 and IAs 5999- 6004/2020
EFS FACILITIES SERVICES (INDIA) PVT. LTD.
(FORMERLY KNOWN AS DAIKIA
INDIA PVT. LTD.) … Petitioner
Through: Mr. Dayan Krishnan , Sr.
Advocate with Mr. Vasant Rajasekaran, Mr.
Saburabh Babulkar, Ms. Reshma Ravipati
and Mr. Sukrit Seth, Advs.
versus
INDEEN BIO POWER LIMITED ….. Respondent
Through: Mr. Hiroo Advani, Mr.
Navdeep Dahiya, Mr. Shashank Garg and Mr. Tariq Khan, Advs.
CORAM:
HON’BLE MR. JUSTICE C .HARI SHANKAR
% 04. 01.2021
JUDGMENT
(Video-Conferencing)
1. As noted in the order dated 28th
July, 2020, this petition was
heard finally, with consent of learned Counsel for the parties. It is,
therefore, being disposed of, by the present judgement.
2. M/s EFS Facilities Services (India) Pvt. Ltd. (hereinafter
referred to as “EFS”) has invoked Section 34 of the Arbitration an d
Conciliation Act, 1996, to challenge the award dated 20th May, 2020,
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 2 of 94 whereby the learned Arbitral Tribunal has arbitrated on the dispute
between EFS and M/s Indeen Bio Power Limited (hereinafter referred to as “Indeen”).
3. EFS was earlier known as M/s. Daikia India Pvt. Ltd.
(hereinafter referred to as “DIPL”). DIPL, vide Share Purchase
Agreement dated 29
th
March, 2012, sold its entire equity to EFS,
which resulted in EFS stepping into the shoes of DIPL.
Facts
4. The controversy between EFS and Inde en revolves, essentially,
around five agreements, viz.
(i) a Project Development Agreement (hereinafter referred to
as “PDA”) dated 2nd
(ii) a Synchronization and Coordination Agreement
(hereinafter referred to as “SCA”) dated 8 May, 2010,
th
(iii) an undated Supply Contract Agreement, September, 2 011,
(iv) an undated Service Contract Agreement and
(v) an undated Works Contract Agreement.
All agreements were between DIPL and Indeen. 5. The PDA was executed between DIPL and Indeen on 2
nd
May,
2010 for setting up an 8 MW Master residue Biomass Plant at
Chandli, Tehsil Devli, Distt Tonk, Rajasthan . Article 1.1 of the PDA
read thus:
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 3 of 94 “1.1 Daikia will engage in preparing and providing Indeen
by August 2, 2010 with:
(i) a firm and binding financial proposal for an EPC
Agreement pursuant to which Daikia would be retained to
perform the detailed engineering, procurement and
construction of the Plant and under which Daikia would
undertake to procure that the Plant would be completed on the
basis of a guaranteed cost, completion date, and performance
standard substantially on the terms set out in the EPC
Agreement term sheet attached hereto as Annex A;
(ii) a firm and binding financial proposal for an O & M
Agreement pursuant to which Daikia would be retained to
operate the Plant following its construction and under which Daikia would undertake to procure that the Plant meets
certain agreed key technical performance indicators (“KPIs”)
including availability and heat rate, substantially on the terms
set out in the O & M Agreement term sheet attached hereto as
Annex B;’
(iii) a final business plan (the “Final Business Plan”) built
by replacing the indicative performance guarantees and
budgetary EPC & O & M estimates of the Reference Business
Plan, by the firm and binding prices and performances of the
EPC and O & M Agreements, and giving as a result a final
return on equity. calculated as an Internal Rate of Return
(IRR) on the equity investment made by Indeen as compared
to the free cash flow generated b y the Project, in accordance
with the assumptions and methodology used in the Reference
Business Plan.
”
As such, Article 1.1 of the PDA required DIPL and Indeen to execute
an EPC Agreement and an O & M Agreement on or before 2nd August,
2010, extendable, under Article 1.2, by two months. Article 3.1 of the
PDA provided that, unless the PDA was terminated earlier in point of
time, it would remain in force till 2nd August, 2010 or till the execution
of the EPC Agreement and the O & M Agreement, whichever wa s
earlier.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 4 of 94
6. EFS has sought to submit, in the present petition, that no Final
Business Plan, as contemplated by Clause 1.1(iii) of the PDA, was
ever finalized between DIPL and Indeen. It is also contended by EFS
that the PDA expired by efflux of time on 2nd
August, 2010, as neither
the EPC contract nor the O & M Agreement had been executed till the
said date.
7. On 18th
January, 2011, the following e -mail was sent by
Paramdeep, an employee of DIPL, to Mahesh Indru Manusukhani, Managing Director (MD) of Indeen:
“…I have accepted all the changes as per [the] last document
sent by Kshitij. I have called this EPC agreement and no
more a draft. Hope this is ok with you all.
This can be now given to [the] bank or any other FII.
All the best…..”
8. On 2nd
March, 2011, DIPL and Indeen executed a confidential
annexure, to be appended to the supply contract which was to be
executed later. This annexure contained the terms and conditions
governing supply and equipment by DIPL to Indeen. It also containe d
a clause enabling Indeen to claim liquidated damages, in the event of
failure by DIPL to deliver the plant in time.
9. On 10th March, 2011, payment terms were forwarded by DIPL
to the State Bank of India (SBI). The communication stated that the
EPC was in the process of final vetting and that the estimated contract
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 5 of 94 value was ₹ 4385.71 crores. It was also stated, in the said
communication, that the terms of payment had been finalized between
DIPL and Indeen, the signed copy whereof was enclosed with the
letter.
10. On 6th
September, 2011, DIPL wrote to Indeen, stating that the
SCA would be executed shortly. This document was signed by the
representative of DIPL. The MD of Indeen acknowledged the
communication by appending his signature thereon. The letter,
however, stated that DIPL would execute the SCA only if Indeen confirmed the following in writing:
“1. That Indeen shall not issue a Notice to Proceed under
the Service, Supply or Works Contracts nor make any
payment to Daikia under the four agreements, until the expiry
of a period equal to sixty days from the date of signature of
the Synchronisation and Co-ordination Agreement.
2. Daikia has the option terminate all four agreements
within the sixty day period referred to in item I should it be
reasonably unable to execute the Project for a sum which is
less than or equal to the Price.
3. Daikia and Indeen will during the sixty day period
referred to in item I, negotiate the Service, Supply and Works
contracts and in so doing will use all reasonable endeavours
to revise the Price downwards in accordance with the Price
Revision Principles set out below. Indeen shall then use all
reasonable endeavours to approve the Service, Supply and
Works contracts with its shareholders and financiers and
Daikia and Indeen will accordingly revise the consolidated
contract price in th e Coordination and Synchronisation
Agreement.”
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 6 of 94 11. On 8th
“1.1 “Commencement Date” shall mean the date as
indicated by Indeen in the notices to proceed to be issued
under the Contract Agreements. September, 2011, the SCA was executed between DIPL
and Indeen. Clauses 1.1, 1.2, 3.1, 7.1, 7.2, 7.5 and 13.4 of the SCA,
which are relevant, may be reproduced thus:
1.2 “Contract Agreements” shall mean Works Contract
Agreement Service Contract Agreement and Supply Contract
Agreement. proposed to be executed between Indeen and
Daikia in a mutually agreed form.
*****
3.1 On and from the Commencement Date, Daikia shall be
responsible for coordinating and monitoring all the activities
specifically forming part of the Contract Agreements.
*****
7.1 The Parties expressly agree that the Contract
Agreements form the entire scope of activities agreed
between the Parties for setting up and developing the Power
Plant.
7.2 The Contract Agreements shall be effective from the
Commencement Date and the term of the C ontract
Agreements shall be co-extensive. Notwithstanding anything
contained in the Contract Agreements, in the event either of
the Contract Agreement is terminated for any reasons
whatsoever, it shall automatically entail the termination of the
other Contract Agreements and the consequences of
termination, including but not limiting to liquidated damages
and rejection (if applicable) of the Power Plant shall follow.
*****
7.5 It is clarified that this Agreement and the Contract
Agreements. taken together constitute the final agreement
between the Parties. Wherever there is any conflict between
this Agreement and the respective Contract Agreements for
provisions mentioned herein, the provisions of this
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 7 of 94 Agreement are paramount and shall prevail over the Contract
Agreements.
*****
13.4 Entire Agreement: Contract Agreements along with
this Agreement constitutes the entire agreement between the Parties and sets out a full statement of the contractual rights and liabilities of Indeen and Daikia.”
12. Relyin g on the afore -extracted clauses, EFS seeks to point out,
in its petition, that
(i) the obligations under the SCA would start only on the
achievement of the “Commencement Date”,
(ii) “Commencement Date” was specifically defined as the
date on which N otice To Proceed (NTP) was issued under the
Contract Agreements , i.e. the Supply Contract Agreement,
Services Contract Agreement and the Works Contract
Agreement and
(iii) the SCA was not, therefore, a stand- alone contract, but
was required to be read in c onjunction with the Contract
Agreements, and it was only thus that the rights and obligations, inter se , between DIPL (later EFS) and Indeen, could be
determined.
13. On 16
th March, 2012, the representatives of DIPL and Indeen
initialed the draft Supply Contract Agreement, Services Contract
Agreement and the Works Contract Agreement. According to EFS,
these did not amount to finalized or executed Contract Agreements,
and, in fact, many details, including the dates of the Agreements, were
left blank. EFS emphasizes, in its petition, the fact that it is an
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 8 of 94 admitted position that no Contract Agreements, complete in all details,
were ever executed between DIPL and Indeen.
14. The petition also asserts that Article 5, in these Contract
Agreements, required the satisfaction of certain conditions, for the
Contract Agreements, to “come into full force and effect”. These conditions, emphasizes EFS, were never fulfilled; resultantly, these
Contract Agreements never came into effect. For ready reference ,
Article 5, which is identical in the three Contract Agreements, may be
reproduced thus:
“5. The Contract Agreement shall come into full force and
effect on the date when the following conditions are satisfied
(“Conditions Precedent”):
(a) Securing of the necessary financing by the
Employer to undertake the Project and attainment of
the conditions precedent under the financing
documents for drawdown of funds by the Employer (in
case such financing documents also stipulate
effectiveness of the Contract Agreement as a condition
precedent. then in such a case, other than effectiveness
of Contract Agreement),
(b) Execution of the Contract Agreement after
obtaining all necessary internal approvals, consents and authorizations by the Employer and the
Contractor,
(c) Issuance of necessary permits and
authorisations by the Employer (other than those to be
obtained by the Contractor);
(d) Payment of the Advance Amount by the
Employer to the Contractor in accordance with the
payment terms as set out in the Contract Agreement;
and
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 9 of 94 (e) Handover of the Site by the Employer to the
Contractor within 5 (five) days of the payment of the
Advance Amount by the Employer to the Contractor
for the purposes of this Contract Agreement.
The afore-stated Conditions Precedent have to be achieved
within 90 days of the execution of the Contract Agreement. Failure to achieve the Conditions Precedent within the afore-
stated time period shall attract such consequences as set out in
the Conditions of Contract Agreement.”
EFS also emphas izes the fact that no Notice To Proceed was ever
issued by Indeen under the aforesaid Contract Agreement.
15. Sometime in 2011- 2012, DIPL evinced, to Indeen, its decision
to sell its equity and exit operations in India.
16. This provoked Indeen to issue a legal notice to DIPL on 28th
“13.2 Dispute Resolution: All disputes, controversies,
claims or counter claims resulting from the Contract
Agreement or relating to the Contract Agreement or to a
breach of this Agreement, to its rescission or its invalidity,
shall be settled by arbitration in accordance with the (Indian)
Arbitration and Conciliation Act 1996 as amended from time
to time. There shall be 3 arbitrators. The seat of arbitration
shall be New Delhi, India. The language used for the arbitration procedures shall be English. The Contract
Agreement shall be governed by the laws of India.”
March, 2012, invoking arbitration, as envisaged by Clause 13.2 of the
SCA , which read thus:
It was alleged, in the said communication, that, while executing the SCA, there was a clear understanding, between DIPL and Indeen, that DIPL would be the investor and EPC contractor for the project, and
that the requirement of internal approvals from the management of
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 10 of 94 DIPL therefore, was a mere formality. Apropos the proposal, of DIPL
to sell its equity and exit India, Indeen asserted that it had contracted with DIPL, as DIPL was the part of the Veolin Group, which was a
global industrial leader, and that it had no inclination to contract with
any successor company. Re liance was also placed, in the said
communication, on the Contract Agreements, which were, according to Indeen, finalized and initialled. As the proposal of DIPL, to exit
operations in India, had resulted in an arbitrable dispute between DIPL
and Indeen, Indeen intimated DIPL that, in exercise of the authority conferred by Clause 13.2 of the SCA, it was appointing a retired learned Judge of the High Court of Bombay as its arbitrator. Indeen,
therefore, called upon DIPL to appoint its arbitrator within 30 days, so
that the matter could be referred to a competently constituted Arbitral
Tribunal. The communication concluded by pegging the losses of
Indeen, as at that time, at ₹ 25 crores.
17. On the very next day, i.e. 29th
March, 2012, as already noted
hereinbefore , DIPL sold its entire equity to EFS vide a Share Purchase
Agreement. EFS, thereby, stepped into the shoes of DIPL.
18. EFS responded to the aforesaid legal notic e of DIPL, on 23rd
(i) the PDA had expired, by efflux of time, on 2
April, 2012, asserting that
nd
(ii) the SCA had never come into effect, for want of issuance
of Notice To Proceed under the Contract Agreements, August,
2010,
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 11 of 94 (iii) the Contract Agreement s had merely been initialled, and
had never been finalized or executed between DIPL and Indeen,
(iv) the EPC Contract was still at the stage of negotiation,
(v) EFS was not responsible for availment of loans by
Indeen, or for any financial loss suffered by Indeen in the
bargain, and
(vi) there was, therefore, no effective agreement subsisting
between EFS and Indeen.
In these circumstances, EFS maintained that there could be no
question of referring any dispute to arbitration, as there was no enforceable a greement, containing any arbitration clause, between
EFS and Indeen. The proposal of Indeen to appoint its arbitrator was, therefore, rejected by the EFS.
19. Indeen, in the circumstances, filed Arb. P. 184/2012 before this
Court, under Section 11(6) of the 1996 Act, seeking appointment of an
arbitrator. The petition was disposed of, by a learned Single Judge of
this Court, vide order dated 21
st
January, 2013, constituting a single –
member Arbitral Tribunal to arbitrate on the dispute between the
partie s, and reserving the issue of existence or non-existence of an
arbitration agreement between DIPL and Indeen, for determination by the learned Arbitral Tribunal.
20. Consequent to commencement of proceedings before the
learned Arbitral Tribunal, an applic ation was preferred by DIPL under
Section 16 of the 1996 Act, alleging that there was no valid and
enforceable agreement between EFS/DIPL and Indeen. Vide order,
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 12 of 94 dated 15th
(i) the terms and conditions of the SCA had not been fulfilled
and it could not, therefore, be said that the SCA had come into effect, September, 2016, the learned Arbitral Tribunal allowed the
aforesaid application, accepting the stand of DIPL. It was held by the learned Arbitral Tribunal, in the said order, that
(ii) no finalize d Contract Agreements had ever come into
existence and
(iii) the SCA was also ineffective for want of issuance of
Notice To Proceed, as envisaged by Clause 1.1 thereof.
Accordingly, it was held by the learned Arbitral Tribunal that it had no
jurisdiction to adjudicate on the dispute between the parties referred to
it.
21. The aforesaid order dated 15
th
September, 2016, of the learned
Arbitral Tribunal, was challenged, by Indeen, before this Court, by way of Arb. A. (Comm) 39/2016.
22. Vide judgment dated 24th July, 2019, a learned Single Judge of
this Court allowed Arb. A. (Comm.) 39/2016. Having taken notice of the events that had transpired, till the filing of the said appeal by
Indeen, this Court observed and held as under:
(i) The moot quest ion before this Court was whether there
was, or was not, any enforceable arbitration agreement between EFS/DIPL and Indeen.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 13 of 94 (ii) Great reliance was placed, by EFS, on the word
“proposed”, as employed in Clause 1.2 of the SCA which, for
ready reference may be r eproduced at the cost of repetition,
thus:
“1.2 “Contract Agreements” shall mean Works
Contract Agreement, Service Contract Agreement and
Supply Contract Agreement, proposed to be executed
between Indeen and Daikia in a mutually agreed form.”
(iii) Apart fro m Clause 1.2, the following Clauses of the SCA
evinced the intent of the parties :
“1.3 “Consolidated Contract Price” shall have the
same meaning ascribed thereto in Clause 4.2.
*****
4.1 The Parties agree that the consideration payable
by Indeen to Daikia for executing the civil works,
providing services in relation to the Project and
supplying plant, equipment, machinery and materials
for the Power Plant shall be as specifically mentioned
in the respective Contract Agreements i.e. Works
Contract Agreement. Service Contract Agreement and
Supply Contract Agreement.
4.2 The consolidated contract price payable by
Indeen to Daikia is Rs. 43,35,71,000 (Indian Rupees
forty three crores thirty five lakhs seventy one thousand only) inclusive of all taxes and duties
(“Consolidated Contract Price”). The Parties acknowledge that the Consolidated Contract Price is
the aggregate of the consideration which shall be
mentioned in the respective Contract Agreements.”
(iv) A conjoint reading of these Clauses indicated that DIPL
and Indeen had agreed to segregate the services, to be provided
by DIPL, into three components, to be executed later in a
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 14 of 94 “mutually agreed form”. This, apparently, was intended to
bifurcate the consolidated contract price of ₹ 43,35,71,000/ –
over the three activities to be undertaken by DIPL. Reliance
was placed, for this conclusion, on the following words,
contained in Clause 4.2 of the SCA:
“… The parties acknowledge that the consolidated
contract price is the aggregate of the consideration
which shall be mentioned in the respective contract
agreements . … ”
Following the above, this Court held, in para s 35.1, 35.2, 36, 36.2,
36.3 to 36.7, 36.9, 37.1 and 39 of its judgment, thus:
“35. Therefore, the overall sense that one gets on reading
the aforementioned documents is that with the execution of the
SCA, the fundamental terms of the contract stood crystallized
and what was required to be done was that parties had to
formally execute the Contract Agreements (which, even
according to the arbitral tribunal, had been initialled) after
certain details with regard to the date of execution, the
bifurcated contract price and guarantees were filled up.
Therefore, what was required to be ascertained by the
arbitral tribunal was, would the fundamental terms agreed to
between the parties give an enforceable right to Indeen to
claim performance from EFS. In my view, a formal execution
of the contract agreement was in substance neither a
condition precedent nor a term of the bargain between the
parties but was a decision taken solely for the benefit of EFS
to enable it to take certain tax benefits. The principle of law
qua this aspect is enunciated pithily in the following judgment
rendered by Parker, J in Von Hatzfeldt-Wildenburg v.
Alexander , (1912) ICH 284 288. The judgment in Von
Hatzfeldt- Wildenburg has been cited with approval by the
Supreme Court in Kollipara Sriramulu (Dead) By His Legal
Representative (In Both The Appeals) v. T. Aswatha
Narayana (dead) By His Legal Representatives & Ors.,
(1968) 3 SCR 387. As a matter of fact, in Kollipara case, the
Supreme Court cited the judgment of Privy Council in
Currimbhoy & Co. Ltd. v. L.A. Creet & Ors., AIR 1933 PC
29 wherein it is held that the principle of English law which
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 15 of 94 was summarized in Parker J’s judgment was applicable in
India. It is on that basis that in Kollipara’s case, the Supreme
Court examined the issue, along with connected issue, as to
whether an oral agreement became ineffective because the
mode of payment of consideration was not agreed upon. In
this context, the Supreme Court made the following
observations:
“3 . … The fact that the parties refer to the preparation
of an agreement by which the terms agreed upon are to
be put in a more formal shape does not prevent the
existence o[ a binding contract. There are, however,
cases where the reference to a future contract is made
in such terms as to show that the parties did not intend
to be bound until a formal contract is signed. The
question depends upon the intention o[the parties and
the special circumstances of each particular case.
“It appears to be well settled by the authorities that if the documents or letters relied on as
constituting a contract contemplate the
execution of a further contract between the
parties, it is a question o( construction whether
the execution of the {i1rther contact is a
condition or term o[the bargain or whether it is
a mere expression o[the desire o[the parties as As
observed by the Lord Chancellor (Lord Cranworth) in Ridgway v. Wharton [6 HLC 238, 63], the fact of a
subsequent agreement being prepared may be evidence
that the previous negotiations did not amount to a
concluded agreement, but the 1nere fact that persons
wish to have a formal agreement drawn up does not
establish the proposition that they cannot be bound by
a previous agreement. In Von Hatzfeldt-Wildenburg v.
Alexander [(1912) 1 CH 284, 288] it was stated by
Parker, J. as follows:
to the manner in which the transaction already
agreed to will in (act go through. In the former
case there is no enforceable contract either
because the condition is fulfilled or because the
law does not recognize a contract to enter into a
contract. In the latter case there is a binding
contract and the reference to the more formal
document may be ignored. ”
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 16 of 94 4…. The question in the present appeals is whether the
execution of a formal agreement was intended to be a
condition of the bargain dated July 6, 1952 or whether
it was a mere expression of the desire of the parties for
a formal agreement which can be ignored. The
evidence adduced on behalf of Respondent 1 does not
show that the drawing up of a written agreement was a
prerequisite to the coming into effect of the oral agreement. It is therefore not possible to accept the
contention of the ap pellant that the oral agreement was
ineffective in law because there is no execution of any
formal written document. As regards the other point, it
is true that there is no specific agreement with regard
to the mode of payment but this does not necessarily
make the agreement ineffective. The mere omission to
settle the mode of payment does not affect the
completeness of the contract because the vital terms of
the contract like the price and area of the land and the
time for completion of the sale were all fixed. We
accordingly hold that Mr Gokhale is unable to make
good his argument on this aspect of the case … ”
35.1 The arbitral tribunal while noticing the judgment of the
Supreme Court in Kollipara has distinguished the same on the
ground that Articles 3.1, 3.3 16 and 5.2 17 of the PDA speak
about finalization of EPC and O & M agreements. Likewise,
the arbitral tribunal has also referred to Article 1.2 of the
SCA to distinguish the judgment once again on the ground
that it speaks of formal execution of the Contract Agreements
relating to supplies, services and civil works. In the same way,
the arbitral tribunal adverts to Article 2.1 18 of the SCA.
Furthermore, the arbitral tribunal goes on to state that it was
not necessary to dwell on this aspect of the matter as it has
been assumed that the Contract Agreements were executed.
35.2 To my mind, it was important for the arbitral tribunal
to come to a conclusion, one way or the other, as to whether
given the facts the parties had agreed to fundamental terms in
the contract obtaining between them gave rise to an
enforceable obligation. As noticed above, the main plank of
the arbitral tribunal’s reasoning instead was that the contract
agreements had no force in law as Indeen had failed to issue
the NTP. In a sense, in my opinion, after noticing the
aforestated aspect, the arbitral tribunal decided not to test
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 17 of 94 Indeen’s stand on the Von Hatzfeldt principle, which in my
view, was crucial.
36. Therefore, let me test the argument advanced on behalf
of DIPL, something which the arbitral tribunal has accepted, that since NTP was not issued, the Contract Agreements had
lost their efficacy. This argument, as noticed above, is pivoted
on the definition of the Commencement Date contained in Clause 1.1 of the SCA and Clause 1.1.3.2 of Conditions of
Contract Agreement which, to my mind, are more or less
similar in all three agreements i.e. the Services Agreement,
the Supply Agreement and the Civil Works Agreement.
*****
36.2. A perusal of the definition of the Commence ment Date
both in the SCA and Conditions of Contract Agreement would
show that while in the former i.e. SCA, it is the date indicated
by Indeen in the NTP to be issued under the Contract
Agreements, in the latter i.e. the Conditions of Contract
Agreement, the date of issuance of NTP. Notably, Clause
1.1.3.10 of the Conditions of Contract Agreements provides
that NTP is that notice whereby the employer, in this case,
Indeen, would instruct the contractor i.e. DIPL, to commence
performance of its obligations subject to achievement of the
Conditions Precedent.
36.3. Clause 1.6.1 provides that the Contract Agreement
shall come into force and effect on the date on which the
Conditions Precedent are fulfilled.
36.4 The Conditions Precedent are set out in sub-clause
1.6.1(a) to (e). Clause 1.6.2 requires each party to inform in
writing at regular intervals the progress made in satisfying the
Conditions Precedent. This clause goes on to state explicitly
that the employer i.e. Indeen, shall issue an NTP only on
fulfillment of Conditions Precedent.
36.5 One of the conditions precedent provided in Clauses
1.6.1 (b) is the execution of the Contract Agreement after all
necessary internal approvals, consent and authorization are
obtained by both the contractor/DIPL and the
employer/Indeen.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 18 of 94 36.6 Furthermore, sub-clause 1.6.3 gives a 90(ninety) days
leeway for attainment of Conditions Precedent after the
execution of the Contract Agreements.
36.7 Thus, clearly, in order of priority, fulfillment of
Conditions Precedent was to precede the issuance of NTP.
Besides this, as indicated above, the parties had a leeway of
90(ninety) days from the date of execution of the Contract Agreements for fulfillment of Conditions Precedent which
could be further extended, albeit, automatically by a period of
45 days.
36.9 As correctly argued by Mr. Advani, Indeen had
90(ninety) days to fulfil the Conditions Precedent and
therefore the obligation to issue NTP would arise only on
fulfillment of the Conditions Precedent. The arbitral tribunal
appears to have ruled otherwise, albeit, contrary to the plain
terms of the provisions referred to hereinabove.
*****
37. There is a similar clause i.e. Clause 5, in the Service
Agreement. In the proviso to Clause 5 of the Service
Agreement, the parties have been given 90 (ninety) days from
the date of execution of the Contract Agreements for
fulfilment of the Conditions Precedent. Therefore, for the
arbitral tribunal to rule that the NTP had not been issued
which led to the contract agreements becoming inefficacious,
to my mind, does not align with the provisions of the treaty to
between the parties of the Assumption set up by the arbitral
tribunal is stated to be correct, which is, that the Contract
Agreements were in fact executed.
37.1 In my opinion, the matter can be looked at from
another angle, which is, that there is no dispute as regards the
execution of the SCA and, therefore, as to whether issuance of
NTP was necessary for the survival of the SCA. Given the fact
that DIS had already i ndicated its intention to exit from India,
it was a dispute which had to be tried on merits by taking recourse to the arbitration mechanism.
*****
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 19 of 94 39. Therefore, for the foregoing reasons, I am unable to
persuade myself to agree with the conclusion reached by the
arbitral tribunal that Clause 13.2 of the SPA could not
operate for the want of issuance of NTP. Thus I must
respectfully disagree with by the arbitral tribunal’s conclusion
that it had no jurisdiction to adjudicate upon on the merits of
the disputes obtaining between the parties. In view of what is
stated hereinabove, I am inclined to allow the appeal. It is ordered accordingly. The impugned order is set aside. Parties
will approach the arbitral tribunal for fixing an early date to
take the matter further. Consequently, I.A. No. 14153/2016
shall stand closed. The parties shall, however, bear their own
costs.”
(Emphasis supplied)
23. SLP 20167/2019, preferred by EFS against the aforesaid
judgment dated 24th July, 2019 of this Court in Arb. A. (Comm.)
39/2016 was dismissed by the Supreme Court on 30th
August, 2019.
As such, the judgment attained finality.
24. This Court, in its judgment dated 24th
July, 2019 in Arb. A.
(Comm.) 39/2016 has clearly and unequivocally, returned the
following findings:
(i) The fundamental terms of the Contract between DIPL
and Indeen stood crystallised with the execution of the SCA.
This resulted in conferment of an enforceable right, on Indeen,
to claim performance from DIPL (later EFS).
(ii) The formal execution of the Contract Agreements was
neither a condition precedent nor a term of the bargain between
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 20 of 94 DIPL/EFS and Indeen. It was a decision taken solely for the
benefit of DIPL/EFS, to enable it to avail certain tax benefits.
(iii) The following principles of law, in this regard, stood
authoritatively enunciated by the Supreme Court in its judgment
in Kollipara Sriramulu v. T. Aswatha Narayana1
:
(a) Merely because the Contract between the parties
referred to the preparation of a subsequent agreement,
containing the term s agreed upon, in a more formal
shape, that would not make the contract per se any less
binding.
(b) There were, however, cases where the reference to
the future contract/agreement, to be executed, was in such
terms as to show that the parties did not intend to be
bound until a formal contract was signed. The answer to
the issue depended on the intention of the parties and the
special circumstances of each particular case.
(c) The position in law was, therefore, that, “if the
document or letters relied on as constituting a contract contemplate the execution of a further contract between
the parties, it is a question of construction whether the
execution of the further is a condition or term of the
bargain or whether it is a mere expression of the desire of
1 1968 3 SCR 387
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 21 of 94 the pa rties as to the manner in which the transaction
already agreed to will in fact go through”. In the former
case there was no enforceable contract, whereas in the
latter, there was a binding contract and the reference to a
more formal document could be ignored.
(iv) A conjoint reading of Clauses 1.1.3.10, 1.6.1, 1.6.2 and
1.6.3 of the Contract Agreements clearly indicated that, in order of priority, fulfilment of the Conditions Precedent was to
precede issuance of Notice to Proceed. 90 days, from the date of execution of the Contract Agreements, was available to the
parties for fulfilment of the Conditions Precedent, which would
extend automatically by a period of 45 days. Even sans such
extension, the period of 90 days, from 16
th March, 2012 when
the Contrac t Agreements were initialled, came to an end on 15th
July, 2012. The obligation to issue Notice To Proceed arose
only on fulfilment of the Conditions Precedent. Clause 5, in the Service Contract Agreement, was to a similar effect. As such, the finding, of the learned Arbitral Tribunal, that, for want of
issuance of Notice to Proceed, the Contract Agreements were
ineffective, was contrary to the provisions of the Contract
Agreements and the SCA. It was also contrary to the earlier
finding, of the learned Arbitral Tribunal, that the Contract
Agreements had, in fact, been executed.
(v) Even otherwise, the SCA had, undisputedly, been
executed. Survival of the SCA was not dependent on issuance
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 22 of 94 of Notice to Proceed. The dispute between EFS and Indeen
was, there fore, required to be decided by the arbitral mechanism
envisaged in the SCA. The arbitration clause, in the duly
executed SCA, stood apart, and did not perish with the SCA,
merely because Indeen had not issued Notice to Proceed. There was no allegation t hat the SCA had been issued by fraud,
duress, undue influence, or that it had been illegally obtained or
was void ab initio .
(vi) The conclusion, of the learned Arbitral Tribunal, that
Clause 13.2 of the SCA could not operate for want of issuance
of Notice to Proceed by Indeen, was not, therefore, sustainable.
The resultant finding, that the learned Arbitral Tribunal had no
jurisdiction to arbitrate on the dispute between EFS and Indeen also, consequently, stood vitiated.
25. The matter thus stood remitted t o the learned Arbitral Tribunal,
and stands adjudicated by the impugned Award dated 20
th
May, 2020.
The Impugned Award
26. Before the learned Arbitral Tribunal, EFS once again sought to
contend that the Contract Agreements had never been executed and that, therefore, the SCA was not enforceable at law. It was sought to
be submitted, by EFS, that this Court had, in its judgment dated 24
th
July, 2019 supra, in Arb. A.(Comm.) 39/2016, merely decided the
factum of existence of an arbitration agreement betwe en EFS and
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 23 of 94 Indeen, and had not held that the SCA was otherwise enforceable or
that the Contract Agreements had been duly executed.
27. In these circumstances, the learned Arbitral Tribunal delineated
the first issue arising before it for consideration as whether, in its
judgment dated 24th
July, 2019, this Court “took cognizance of the
arguments of the learned Counsel for the parties relating to the issue
whether or not the EPC Agreement, the SCA and Contract
Agreements were arrived at and whether it decid ed the issue or simply
held that an Arbitration Agreement exist between the parties without deciding the aforesaid issue”.
28. Proceeding, thereafter, to reproduce para 35 of the judgment,
dated 24
th
July, 2019 supra of this Court, the learned Arbitral T ribunal
held, in para 35, 36 (i), 36 (ii), 37, 38, 41 and 43 of the impugned Award, thus:
“35. It is abundantly clear from the observations of the
Court that it was of the view that with the execution of the
SCA, the fundamental terms of the contract crys tallized and a
formal execution of the contract agreement was neither a
condition precedent nor a term of the bargain between the
parties. Therefore, the Court overruled the Tribunal’s view
that the initialed Contract Agreements required further
formalization and/or finalization. Thus, the Court concluded
that the Contract Agreements had been arrived at between the
parties and formal Agreements had been arrived at between
the parties and formal execution thereof was not necessary.
As regards, the question whether the contact agreements lost
their efficacy since NTP was not issued, the court in para 37
concluded that “… for the Arbitral Tribunal to rule that the
NTP had not been issued which led to the contract agreements
becoming inefficacious”, “does not align with the provisions
agreed to between the parties if the assumption set up by the
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 24 of 94 arbitral tribunal is taken to be correct, which is, that the
Contract Agreements were in fact executed”.
36(i) The learned counsel for Respondent contended that the
aforesaid observation of the Court was based on the assumption set up by the Tribunal that the Contract
Agreements stood executed by the parties. Therefore, the
question as to whether or not the execution of the Contract Agreements was a necessary requirem ent still needs to be
adjudicated in these proceedings. He also contended that in the event the Tribunal answers the question in the negative
then the question for decision would be whether issuance of
NTP was necessary to effectuate Contract Agreements. The
learned counsel in making the said contentions has
overlooked the finding of the court in paragraph 35 of its
Order. It will be advantageous to direct attention to the same
for allaying the doubts, if any, of the Respondent. It has been
categoricall y observed by the Court that with the execution of
the SCA, the fundamental terms of the Contract agreements
stood crystallized and formal execution of the contract
agreements was neither a condition precedent nor a term of
the bargain between the parties. In this view of the matter, the
initialed Contract Agreements by the parties did not require
formal execution and the finalized and initialed Contract
Agreements were as good as formally executed ones.
36(ii). The finding of the Tribunal that since NTP was not
issued as required by the SCA and the commencement date
under the SCA was not triggered and hence it lost its efficacy
was dealt with in detail in paras 36-36.9 of the Appellate
order. The Court noted the definition of ‘Commencement
Date’ both in the SCA and the Contract Agreements. ….
37. The learned counsel for the Respondent in its effort to
show that initialed contract agreements were not concluded
agreements had canvassed before the High Court that in the
contract agreements there are blanks as to the crucial aspects
of the matter. The Court, as already pointed out, held that
Contract Agreements were arrived as their fundamental terms
stood crystallized. Thus, the argument advanced on behalf of
the Respondent stood negated.
38. Taking cue f rom the Appellate Order, it is clear that the
agreements had been reached between the parties and Indeen
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 25 of 94 was well within its right to issue NTP by 15.06.2012 without
availing the benefit of provision for automatic extension. As
noticed in the Appellate Order the General Manager of DIPL
informed the General Manager of Indeen that Daikia Group
was pulling out of India. It is intriguing that on 16.03.2012 the parties arrived at the Contract Agreements and thereafter
in four days or so, Daikia took a decision to quit India and
sold its shareholding to EFS vide Sale Purchase Agreement
dated 29.03.2012. Daikia made it impossible for the Claimant
to issue NTP. Therefore, it cannot claim that the agreements did not trigger because NTP was not issued by the Claimant.
It is well settled that no one can take advantage of its own
wrong. DIPL exited India without caring to discharge its
contractual obligations arising from the SCA and the Contract
Agreements. This was an act of renunciation/repudiation. It
was in breach of its contractual obligations under the SCA
and the Contract Agreements. The following observations of
the Tribunal found in the order dated 15.09.2016 have
acquired a fresh dimension in view of the Appellate order:
“103. …..On the one hand, Daikia was negotiating
with the Claimant and non the other hand extricating
itself from the Respondent. On March 10, 2011 Daikia
had written a letter to SBI stating that the legal draft of the EPC Contract is with the lawyers in Paris for final
vetting before document could be signed. The letter
also states that the estimated contract value had been
finalized. It may be recalled that during the same time,
Daikia International was negotiating with EFS,
Mauritius for sale of 100% shares of Daikia to it
without disclosing this to the Claimant. The factum of negotiations and sale of its total shareholding is evident
from the Share Purchase Agreement dated March 29,
2012 between Daikia International SA, Cadrazur and
Daikia India Pvt. Ltd. On the one hand and EF S
Services Facilities Ltd., Mauritius on the other. The
Share Purchase Agreement reveals that the process of
negotiations between Daikia and EFS Mauritius started
with the offer of the latter dated January 3, 2012. The three agreements were initialed on March 16, 2012.
All this was going on without even giving any inkling of it to Claimant. Silence does not normally amount to
misrepresentation but reticence must be considered as
antithetic to fairness. Daikia’s conduct leaves much to
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 26 of 94 be desired. It’s conduct ought to have been impeccable
but unfortunately it was not so. …
*****
41. From a reading of the Appellate Order and the
aforesaid discussion it can be concluded as under :
i. The fundamental terms of the Contract stood
crystallized on being initialed by the parties. Formal execution of the contract was not a condition of the
bargain.
ii. The SCA and the Contract Agreements came
into existence giving rise to the rights and obligations
of the parties.
iii. The Claimant had 90 days leeway for attainment
of conditions precedent after execution of the Contract
Agreements.
iv. The condition precedent were to precede the
issuance of NTP
v. Since the Agreements were initialed on
16.03.2012, period of 90 days would have come to an
end on 15.06.2012.
vi. Daikia abandoned the contract by its wrongful
act and thereby prevented the claimant from issuing
the NTP. Therefore, it cannot be allowed to take
advantage of its own wrong by taking shelter behind
the argument that the SCA and the Contract
Agreem ents did not come into force without the
issuance of NTP.
*****
43. Thus, it stands determined that the SCA and the three
Contract Agreements were executed. Their existence and
effectiveness is no longer in dispute.”
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 27 of 94 29. Having thus returned its find ing, based on the judgment dated
24th
July, 2019 of this Court in Arb. A.(Comm.) 39/2016, that the
SCA, as well as the three Contract Agreements were executed and
effected, the learned Arbitral Tribunal went on to examine the merits
of the claims of Indeen, thus:
30.1
Re. C laim for loss of revenue in power generation
30.1.1 Under this head , Indeen claimed ₹ 11.37 crores from EFS.
30.1.2 Qua this claim, Indeen submitted, before the learned Arbitral
Tribunal, as under:
(i) The EPC cost was reflected, in the PDA dated 2nd May,
2010, as ₹ 46.32 crores, which w as revised, in the SCA dated 8th
September, 201 1, to ₹ 43.35 crores.
(ii) DIPL represented that the project would be operational in
September, 2012 and would yield the following net profit:
2012 -13 2013 -14 2014 -15 2015 -16
Net profit
after Tax (-) 2.01 3.42 3.85 4.27
Depreciation 2.37 2.37 2.37 2.37
Total Cash
Surplus 0.36 5.79 6.22 6.64
(iii) Indeen had computed the loss suffered by it for 2½ years,
as the relationship with DIPL continued from 12th March, 2010
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 28 of 94 till 2012, and six more months were taken to engage a new
contractor.
(iv) Though, fo r 2½ years, the profitability indicated by DIPL
was ₹ 12.37 crores, Indeen was making a conservative claim of
only ₹ 11.37 crores. The Final Business Plan provided by DIPL
computed the loss suffered, for the period in issue as ₹ 12.91
crores.
(v) The loss suffered by Indeen was proved by the statements
of Mahesh Mansukhani and Sohan Lal Dutta . CW -1 Mahesh
Mansukhani, in his affidavit, confirmed that, as per the
representation of DIPL, the project was to be operational by
September 2012. According to the said affidavit, cash surplus, after factoring in ne t profit after tax and depreciation for the
years 2012 -2013, 2013- 2014, 2014 -2015 and 2015 -2016 would
be 0.36, 5.79, 6.22 and 6.64 respectively.
(vi) The claim of Indeen was based on the profit and loss
account of the project, which was part of the Refere nce
Business Plan dated 2
nd May, 2010, prepared and provided by
Daikia . The Reference Business Plan found mention in recital
‘E’ of the PDA, which stated that “ Daikia had prepared the
same on the basis of DPR (Detailed Project report), a set of
likely pla nt technical performance criteria and a budgetary EPS
and O & M proposal on the basis of which a (Reference
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 29 of 94 Business Plan) has been prepared”. The Reference Business
Plan constituted Annexure ‘C’ to the PDA.
(vii) Daikia had also provided a Final Busines s Plan, exhibited
as Ex. C -96, on the basis of which the total loss of profit, for the
above period, worked out to ₹ 12.91 crores.
(viii) The witnesses of Indeen were not cross-examined by
EFS, on the quantum of loss suffered by Indeen owing to the
exiting of Daikia , as set out in the Statement of Claim . This
quantu m had, therefore, to be treated as admitted and correct.
30.1.3 As against this, the submissions of EFS were as under:
(i) The alleged quantum of loss suffered, as set out in the
Statement o f Claim, and in the table extracted in para 34.1.2(ii)
(supra ), was unsupported by any material. These figures were
derived from a document titled “Project-Profit and Loss
Account”, which was allegedly part of the “Reference Business
Plan”. The “Project -Profit and Loss Account” was, however,
not exhibited in the arbitral proceedings, whereas the other two pages of the alleged “Reference Business Plan” were exhibited as Annexure C -25. As a result, no admission and denial of the
“Project -Profit and Loss Ac count” could be undertaken by EFS.
It was not open, therefore, to EFS, to rely on the “Project-Profit and Loss Account” to support the alleged loss suffered by it as a consequence of exiting of Daikia .
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 30 of 94
(ii) The Reference Business Plan had wrongly been at tributed
to Daikia . There was also discrepancy between the figures
contained in the Reference Business Plan and Project-Profit and Loss Account. The Reference Business Plan, moreover, was unsigned. In any event, it was merely a reference document, and no t a Final Business Plan. The Reference Business Plan
was never replaced by a Final Business Plan, as envisaged by Article 1.1(iii) of the PDA. The figures in the alleged Reference Business Plan were, therefore, merely indicative and could not be relied u pon for computing damages. Even the
Return On Equity (ROE) mentioned in the Reference Business Plan was not finalized, and was dependent on the execution of the EPC and O & M Agreements, which were never executed. Article 5.3 of the PDA postulated that, in case the ROE based
on the Final Business Plan was less than the ROE projected in
the Reference Business Plan, the EPC Agreement and the O &
M Agreement would be subject to further negotiations. The ROE was less than 23.43%, as projected in the alleged Reference Business Plan. As such, the EPC Agreement and the
O & M Agreement were never finalized, but were in the process
of negotiation. Reliance was placed on the cross-examination
of CW -1 Mahesh Mansukhani, in which he had acknowledged
that the Final Business Plan had not been finalized and that the
ROE, which was based on the Reference Business Plan, was
subject to replacement by the Final Business Plan in future.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 31 of 94 (iii) The alleged Reference Business Plan was not part of the
SCA and could not, the refore, be relied upon, as the SCA
represented the entire agreement between DIPL and Indeen.
(iv) Assurances tendered during the course of negotiation
were not binding and had no contractual force.
(v) The alleged project report was undated and unsigned. It
had been denied by RW -1, the witness of DIPL.
(vi) Computation of loss of revenue from generation loss was
a speculative and vague exercise, based on guess work. Indeen had led no evidence to establish that it had suffered any loss, or the extent of loss suffered. Without proof of actual loss, Indeen
was not entitled to any claim. Reliance was placed on various
judicial authorities for this proposition.
(vii) DIPL never represented to Indeen that the project would
be functional by September, 2012. Even as per Indeen’s own
showing, the plan could not be made functional by the said date.
CW-1 had, in his cross-examination, acknowledged that 18
months were required to complete the project and for it to become operational. The Contract Agreements we re, according
to Indeen, initialed by the parties on 16
th March, 2012. 18
months, reckoned from the said date, would expire on 15th
September, 2013. The manner in which loss of revenue from
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 32 of 94 power generation had been computed by Indeen in its Statement
of Claim was, therefore, wholly incorrect.
30.1.4
Findings of the learned Arbitral Tribunal qua. Claim 1
Having thus set out the submissions of EFS and Indeen before
it, the learned Arbitral Tribunal proceeded to observe and find
thus:
(i) Paras 41 and 42 of the Statement of Claim referred to the
factum of execution of the PDA, EPC Agreement and the cost of the project. Para 43 specifically referred to the
representation, by DIPL, to the effect that the project would be operational by September, 201 2, and that the net profit after
accounting for taxes would be 0.36, 5.79, 6.22 and 6.64 for the years 2012- 2013, 2013 -2014, 2014 -2015 and 2015 -2016
respectively. Para 44 of the Statement of Claim alleged that, due to two years’ deliberate delay attributab le to DIPL and six more
months required to engage another contractor, Indeen would, during the 2½ years period between 2012 -2013 and 2014 -2015,
have lost ₹ 12.37 crores. Para 44 of the Statement of Claim
referred to the Reference Business Plan annexed the rewith,
which contained projections and tabulations for the claim of ₹ 11.37 crores.
(ii) These assertions, as contained in the Statement of Claim,
had not been specifically traversed in the Statement of Defence
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 33 of 94 by DIPL, which had contented itself with a general denial.
There was no specific denial to the assertion, in para 43 of the Statement of Claim, that DIPL represented that the project
would be operational by September, 2012 and would yield
profits as described in the table set out in the said par agraph.
Though, in paras 43 and 44 of the Statement of Defence, DIPL had sought to contend that, in the absence of any effective
agreement between the parties, DIPL would not be held liable
for the estimated net revenue/claims with projected ROE of 23.44% , the figures themselves had never been challenged.
Neither was there any denial of, or dispute with respect to, the
Reference Business Plan annexed to the Statement of Claim.
The Statement of Defence did not seek, in any manner, to dispute the existence or the authenticity of the annexed
Reference Business Plan.
(iii) The following facts, as set out in the Statement of Claim,
had not been specifically denied by DIPL, in its Statement of
Defence (as enumerated in the impugned Award):
“i. PDA executed on 02.05.2010
ii. Cost of the project and ROE as per PDA:
Rs.46.32 Crores with projected ROE of 23.44%.
iii. SCA executed on 08.09.2011.
iv. Cost of the project as per EPC: Rs.43.35 Crores.
v. Reason for scaling down the cost: shifting some
part of scope of work from EPC to the Claimant.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 34 of 94 vi. The Cost of the Project communicated to SBI in
October 2011 for securing loan: Rs.51 crores, inclusive
of a sum of Rs.7.5 crores which accounts for cost of
components not within the Scope of EPC Contract.
vii. Respondent made representations to the
Claimant that the project would be operational by September, 2012 and will give net profit as mentioned above.
viii. The projected delayed by two and half years
due to the Respondent.
ix. Claimant suffered Net Project Revenue loss
from generation loss:
Rs. 12.37 Crores (0.36+5.79+6.22) but confines it to
Rs.11.37 crores
x. Reference Business plan filed with the SOC
containing the projections and tabulations for the
subject claim.”
(iv) Assertions contained in pleadi ngs and not specifically
denied by the opposite party, were deemed to be admitted, by
virtue of Order VIII Rules 3, 4 and 5 of the Code of the Civil
Procedure, 1908 (CPC). Though arbitral proceedings were not
bound by the strict confines of the CPC and th e Evidence Act,
1872, prescriptions and proscriptions, contained therein, which furthered adherence to the principle of natural justice and equity, and the requirement of acting judicially, deserved
implicit compliance. Viewed this, allegations and assertions,
contained in the Statement of Claim and not specifically traversed in the Statement of Defence, were deemed to have been admitted. Moreover, Indeen had also relied, to support the
above assertions on the evidence of CW -1 Mr. Mahesh
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 35 of 94 Mansukhani and CW -2 Mr. Sohan Lal Dutta, who affirmed the
contents of the Statement of Claim.
(v) At the same time, no such deemed admission could be
said to have taken place qua the quantum of damages contained
in para 65 of the Statement of Claim.
(vi) Para 15 of the a ffidavit in evidence of CW -1 Mr. Mahesh
Mansukhani asserted thus:
“I say that as per the Respondent’s representation, the
project would be operational by September, 2012, the
subsequent net profit would be
2012 -13 2013 -14 2014 -15 2015 -16
Net profit
after Tax – 2.01 3.42 3.85 4.27
Depreciation 2.37 2.37 2.37 2.37
Total Cash
Surplus 0.36 5.79 6.22 6.64”
(vii) CW-1 had also testified that the delay of 2½ years was
attributable to DIPL asking for splitting of the single EPC
Agreement into three Contra ct Agreements in September, 2011.
It was further deposed by CW -1 that, as commercial operation
would start only by April, 2014, with an implementation period
of 18 months, Indeen would lose the entire net project revenue
from generation of power during the period of 2½ years from 2012 -2013 and 2014-2015. CW -1 further confirmed that the
loss of profit, claimed by Indeen, was based on the Reference
Business Plan annexed with the Statement of Claim.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 36 of 94
(viii) The evidence of CW -1 read with para 43 of the Statement
of Claim, therefore, indicated that DIPL had not only
represented regarding the extent of profitability of the project
but had also represented that the project would be operational
by September, 2012. The testimony of CW1 further revealed that, on the basis of the Reference Business Plan, Indeen had
raised a claim of ₹ 11.37 crores, though the actual figure, based
on the said business plan, for 2½ years, would be ₹ 12.37
crores.
(ix) The Reference Business Plan was brought on record and
exhibited as Annexure C -22 during the course of examination-
in-chief of CW -1. Th ere was no objection by EFS thereto.
Undoubtedly, though, it was necessary for Indeen to prove the
Reference Business Plan.
(x) Apropos the requirement of proof of the Reference
Business Plan, CW -1 had stated, in his testimony, that the
Reference Busines s Plan was prepared by Da ikia. CW -1 was
the person, in Indeen, who was negotiating with Da ikia. No
question, regarding the figures contained in the Reference Business Plan, was put, to CW -1, by EFS. Neither did EFS
question CW -1 regarding the quantum of the claim or the
documents filed by Indeen, namely the extract from the Reference Business Plan, the budgetary proposal, the summary of estimated cost for the plant and Project-Profit And Loss
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 37 of 94 Account. As such, the correctness of these documents, and th e
figures contained therein, stood established.
(xi) Even otherwise, the testimony of CW -1, regarding the
Reference Business Plan and budgetary proposal, was
corroborated by recital ‘E’ in the PDA, to the effect that “ Daikia
had prepared on the basis of Detailed Project Report, a set of
likely Plant Technical Performance Criteria and a budgetary
EPC and O & M proposal on the basis of which a Reference Business Plan has been prepared and attached hereto as Annexure C”.
(xii) DIPL had also sought to question the authenticity of the
Reference Business Plan and the fact that the exhibited document was incomplete. This argument, too, could not
sustain. Exhibit C -22 was an extract from the Reference
Business Plan, and it had been clearly so mentioned by Indeen
in the title of the document in the Statement of Claim. This
extract consisted of the budgetary proposal, Project Profit and Loss Account and the estimated cost of the project. Had there
been any doubt regarding the authenticity or correctness of
these d ocuments, EFS could have placed, on record, the
complete signed version of the PDA along with its annexures. EFS did not do so. In these circumstances, the learned Arbitral
Tribunal directed EFS on 22
nd July, 2014 to produce the original
signed version of the PDA with annexures (during the cross –
examination of RW -1 Sebastian Bernard). The signed version
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 38 of 94 of the PDA was, however, not produced on the next date, i.e. 8th
“Q. 154 Kindly see question number 105. You
were to bring signed version of PDA along with the
annexures. Have you got the same?
December, 2014. The learned Arbitral Tribunal has extracted,
in the impugned Award, the following exchange of questions
and answers with RW -1 Sebastian B ernard, during cross-
examination:
A. No, I do not have.
Q. 155 You do not have it now or it was not
available in your office?
A. It was not available in my office.
Q. 156 Are you suggesting that nobody in
Daikia had the signed version of PDA along with the
Annexures?
A. I could not find one.
Q. 157 Did you make any enquiry with the
officers of the Daikia regarding this document?
A. With some of them.
Q. 158 Can you tell us their names?
A. Fadi Oubari and Mathias Hasdey.
Q. 159 Are you suggesting that nobody in
Daikia knows whether PDA was signed with or
without annexures?
A. It is long time ago and it seems nobody recalls.”
The justification adduced by RW -1 Sebastian Bernard, for
failing to produce the signed version of the PDA alongwith
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 39 of 94 annexures, did not inspire confidence. The effec t of failure to
produce the said document was that DIPL had been unable to
disprove the authenticity and completeness of the Budgetary
Proposal, Project-Profit and Loss Account and Estimated Cost
of the Project, filed by Indeen.
(xiv) RW-1, in his testimony, had not equivocally and
explicitly, denied the Reference Business Plan has been other than the one which was part of the PDA, or not prepared by Daikia . In this context, the learned Arbitral Tribunal extracted
the query put to RW -1, and his respons e thereto, as under:
“Q. 70 Shown Exhibit C-100. Were you aware
that these were the three Annexures A, B & C to the
PDA at pages 151 to 171 of Vol.3 of the SOC
equivalent to pages 272 to 292 of Vol.III of the
Exhibits filed by the Claimant?
A. I do not remember.”
The answer of RW -1, to the query put to him, clearly conveyed
that he did not remember whether the annexures filed by Indeen
were annexures to the PDA. That they were, was not, therefore,
denied by RW -1. The assertion, by Indeen, that Annexures A,
B and C, as annexed to the Statement of Claim were part of the
PDA, remained untraversed.
(xv) The learned Arbitral Tribunal also relied, in this context,
on the following exchange of question and answers, between the representative of Indeen and RW -1:
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 40 of 94 “Q.72 Please see paragraph 4 of your affidavit.
Can you tell us whether the PDA referred in the
paragraph is with or without annexures?
Ans. I do not know.
Q.73. Could you tell us before preparing the affidavit
whether you did or you did not read the PDA?
Ans. Yes. But there were no attachments with PDA.
Q.74. Are you suggesting that your read the signed
copy of the PDA from your office record and the
signed copy did not have any attachments?
Ans. Yes, as far as I recall.
Q.279 On the last occasion, you were to produce a
signed copy of the Project Development agreement’
Ans. I do not have the same.”
The learned Tribunal found it unsettling that, while asserting, in
his answer to Question No.72, that he was unaware whether the
PDA was with or without annexures, the memory of RW -1
suddenly “bounced back”, when put Question No. 73, in
response to which he stated that there were no attachments to the PDA. Again, in his response to Question No. 74, he stated
that as far as he recalled, the PDA did not have annexures. The
manner in which RW -1 was responding to the queries put to
him, felt the learned Arbitral Tribunal, was “cavalier” in nature. While, in answer to Question Nos. 73 and 74, RW -1 admitted
that the signed version of the PDA was ava ilable in his office
record and that he had perused the same before preparing his affidavit, in response to Question Nos. 279 and 280, he stated
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 41 of 94 that he neither had the signed version of the PDA with him, nor
had he been able to find the signed version from any person in his organisation. Again, in response to Questions 156 to 159,
RW-1 stated that he had made enquiries with certain officers of
Daikia , regarding the PDA, but that nobody recalled whether
the PDA was signed with or without annexures. The le arned
Arbitral Tribunal found it “absurd”, on the part of RW -1, to
deny the availability of a signed version of the PDA after
admitting that it was in his office record, and that he had read the same before preparing his affidavit. Significantly, the affidavit of RW -1, which was dated 8
th January, 2014, was
tendered in evidence on 2nd
July, 2014 and, on the very same
day, RW -1 admitted, in cross examination, that the signed copy
of the PDA was in his office record and that he had read the
same, backtrackin g on this assertion a few months later in
further cross examination. The learned Arbitral Tribunal also
observed that it was unbelievable that a large company would
not preserve the PDA.
(xvi) In these circumstances, the learned Arbitral Tribunal
drew an adverse inference against EFS, that the signed version
of the PDA had been withheld by it, as disclosure thereof would reveal that the Reference Business Plan, the extract of which
was exhibited as Exhibit C -22 in the proceedings, was the same
as that which was contained in the signed version of the PDA.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 42 of 94 (xvii) In the circumstances, the learned Arbitral Tribunal held
that the Reference Business Plan, the extract of which was
exhibited as Exhibit C -22, was part of the PDA. The
submission, of DIPL, that the authenticity of the extract of the
Reference Business Plan, as filed with the Statement of Claim and exhibited as Exhibit C -22, was suspect, was rejected.
(xviii) Apropos the submission of DIPL that no Final Business
Plan had been drawn up, Indeen submitted that Daikia did
provide the Final Business Plan as part of its project report,
which was exhibited as Exhibit C -96. EFS contended, per
contra , that no such project report or Final Business Plan had
been prepared or provided by Daikia . Reliance was placed, by
EFS, for this purpose, on the fact that the Project Report did not bear the date, signature or logo of Daikia .
(xix) This submission, of EFS, stood demolished by the cross
examination of RW -1, during which RW -1 admitted that Daikia
Energy Services Limited (DESL) was a Daikia entity. The
Project Report (Exhibit C -96) specifically recorded thus:
“Indeen has completed a feasibility and detailed project
report, including the viewer assessment study”
These studies were carried out by Daikia Energy Services
Ltd.(DESL) (formerly DSCL Energy Services). This indicated
that the Project Report was actually a study carried out by
DESL, which was a Daikia entity. The query, to this effect, put
to RW -1, was parried by him, by stating that he was not in a
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 43 of 94 position to comment on the content of a denied document.
Clearly, therefore, the study, with regard to the feasibility of the project and the resultant project report were prepared by a
Daikia entity.
(xx) Moreover, the logo of a tree, contained on the project
report, was similar to the logo contained in Page No.1 of
Volume II of the compilation of exhibits, which was admitted,
by RW -1, in cross examination, to have been issued by Daikia .
He also acknowledged the fact that the said documents contain ed the same logo of a tree at the bottom, as was
contained in the project report.
(xxi) The discrepancy in the figures contained in the Project
Profit and Loss account (part of Exhibit C -96) and Exhibit C -22
(the extract from the Reference Business Plan), on the basis of
which loss of profit had been assessed by Indeen, was not “appreciable”. This difference was clearly attributable to the fact that the Project- Profit and Loss Account, which was part of
the project report Exhibit C -96, was the final prof it and loss
account as envisaged in the PDA, prepared after the Reference Business Plan (Exhibit C -22).
(xxii) The further contention, of EFS, that Indeen had not led
any evidence to establish that it had suffered actual loss, which was necessary in order for Indeen to pay damages, was also found to be devoid of substance. The learned Arbitral Tribunal
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 44 of 94 found the Reference Business Plan and the Project-Profit and
Loss Report to be the best evidence, which it had already held to be part of the PDA and pre pared by Daikia , the authenticity
of which could not be disproved by EFS. The figures relating to loss and profit have been computed by Indeen on the basis of the Reference Business Plan. According to the Final Business Plan, for the period of for the pe riod 2012 -2013 to 2014-2015,
the total loss of profit worked out to ₹ 12.19 crores. As against
this, Indeen was claiming only ₹ 11.37 crores as loss of profit
on account of generation loss. This figure, as contained in the
Statement of Claim was not disputed in the Statement of
Defence nor challenged in the cross examination of the
witnesses of Indeen. As such, the claim of Indeen, based on the
Reference Business Plan, was genuine.
(xxiii) Besides, in Dwarkadas v. State of M.P.2
2 (1999) 3 SCC 500 , the Supreme
Court had held that though, the measure of profit was dependent
on the facts and circumstances of each case, a reasonable
expectation of profit was implicit in a works contract. The
following passages, from the said judgment were specifically
relied upon, by the le arned Arbitral Tribunal:
“9. The claim of the petitioner for payment of Rs
20,000 as damages on account of breach of contract
committed by the respondent-State was disallowed by
the High Court as the appellant was found to have not
placed the material o n record to show that he had
actually suffered any loss on account of the breach of
contract. In this regard, the appellate court observed:
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 45 of 94
“It is not his case that for due compliance of the
contract he had advanced money to the
labourers or that he had purchased materials or
that he had incurred any obligations and on
account of breach of contract by the defendants
he had to suffer loss on the above and other
heads. Even in regard to the percentage of profit
he did not place any material on record but
relied upon assessment of the profits by the
Income Tax Officer while assessing the income
of the contractors from building contracts.”
Such a finding of the appellate court appears to be
based on wrong assumptions. The appellant had never
claimed Rs 20,000 on account of alleged actual loss
suffered by him. He had preferred his claim on the
ground that had he carried out the contract, he would
have earned profit of 10% on Rs 2 lakhs which was the
value of the contract. This Court in A.T. Brij Paul
Singh v. State of Gujarat, (1984) 4 SCC 59 while
interpreting the provisions of Section 73 of the
Contract Act, 1872 has held that damages can be
claimed by a contractor where the Government is
proved to have committed breach by improperly
rescinding the contract and for estimating the amount
of damages, the court should make a broad evaluation
instead of going into minute details. It was specifically
held that where in the works contract, the party
entrusting the work committed breach of contract, the
contractor is entitled to claim the damages for loss of
profit which he expected to earn by undertaking the
works contract. Claim of expected profits is legally
admissible on proof of the breach of contract by the
erring party. It was observed: (SCC pp. 64 -65, paras
10-11)
“What would be the measure of profit would
depend upon facts and circumstances of each
case. But that there shall be a reasonable
expectation of profit is implicit in a works
contract and its loss has to be compensated by
way of damages if the other party to the contract
is guilty of breach of contract cannot be
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 46 of 94 gainsaid. In this case we have the additional
reason for rejecting the contention that for the
same type of work, the work site being in the
vicinity of each other and for identical type of
work between the same parties, a Division
Bench of the same High Court has accepted 15
per cent of the value of the balance of the works
contract would not be an unreasonable measure
of damages for loss of profit.
***
Now if it is well established that the respondent
was guilty of breach of contract inasmuch as the
rescission of contract by the respondent is held
to be unjustified, and the plaintiff -contractor had
executed a part of the works contract, the
contractor would be entitled to damages by way
of loss of profit. Adopting the measure accepted
by the High Court in the facts and circumstances
of the case between the same parties and for the
same type of work at 15 per cent of the value of
the remaining parts of the works contract, the
damages for loss of profit can be measured.”
To the same effect is the judgment in Mohd.
Salamatullah v. Govt. of A.P. [(1977) 3 SCC 590 :
AIR 1977 SC 1481] After approving the grant of
damages in case of breach of contract, the Court
further held that the appellate court was not justified in
interfering with the finding of fact given by the trial
court regarding quantification of the damages even if it
was based upon guesswork. In both the cases referred
to hereinabove, 15% of the contract price was granted
as damages to the contractor. In the instant case
however, the trial court had granted only 10% of the
contract price which we feel was reasonable and
permissible, particularly when the High Court had
concurred with the finding of the trial court regarding
breach of contract by specifically holding that “we,
therefore, see no reason to interfere with the finding
recorded by the trial court that the defendants by
rescinding the agreement committed breach of
contract”. It follows, therefore, as and when the breach
of contract is held to have been proved being contrary
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 47 of 94 to law and terms of the agreement, the erring party is
legally bound to compensate the other party to the
agreement. The appellate court was, therefore, not
justified in disallowing the claim of the appellant for
Rs 20,000 on account of damages as expected profit
out of the contract which was found to have been
illegally rescinded.”
That which applied to a works contract would also apply to other contracts.
(xxiv) By its act of renunciation, DIPL had abandoned the
contract. It, thereby, became liable to pay damages to Indeen.
(xxv) As the claim of Indeen was less than the actual amount
which worked out for 2½ years on the basis of the Project-Profit
and Loss Report and the Reference Business Plan, Indeen was
entitled to receive ₹ 11.37 crores as loss of profit from EFS.
30.1.5 As a result, Claim No. 1 of Indeen for ₹ 11.37 crores damages
from EFS, towards loss of profit, was allowed.
31.
Re Claim No.2 – For escalation cost of the new contractor
31.1 Indeen claimed, in this claim, escalation in cost on account of
having had to engage a new contractor. It was contended that, even
going by the lowest of the three bids received in response to the notice
issued by it inviting tenders for the project, there was an escalation of
₹ 12 crores. Indeen contended that the bids had been placed on
record, and that the credentials of the bidders, who were contractors of
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 48 of 94 repute, had not been disputed by EFS. It was also submitted, by
Indeen, that it had taken fresh extension of time from the Government
of Rajasthan to complete the project, for which an amount of ₹ 87.51
lakhs was paid between August, 2012 and November, 2018.
Extension of time had been granted, by the Government of Rajasthan,
till 31st
December, 2020.
31.2 Indeen furth er contended that it had taken genuine steps to
mitigate its losses, as was evidenced by the fact that it had examined
three budgetary offers, none of which had a guaranteed output and
could not, therefore, be pursued. The offers in the comparative chart,
in that regard, it was contended, had been proved by Indeen’s
witnesses.
31.3 As against this, EFS contended that the budgetary offer of M/s
ISGEC Heavy Engineering Ltd. (hereinafter referred to as “ISGEC”),
filed by Indeen, on the basis whereof a claim of ₹ 12 crores had been
raised, was an incomplete document, lacking evidentiary value.
Moreover, it was contended that this was only a budgetary offer and
was not final or binding. It was further submitted, by EFS, that there
was no evidence of any for mal contract having been executed between
Indeen and any new contractor, any work having been performed on
the project or any payment having been made to any new contractor.
It was reiterated that taking of reasonable steps, to mitigate losses, was
an essential sine qua non , before damages could be claimed.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 49 of 94 31.4 Addressing these arguments, the learned Arbitral Tribunal
found/held as under:
(i) Indeen was claiming escalation on the basis of the earliest
budgetary offers received from ISGEC, within three months of
service of notice invoking arbitration, on EFS.
(ii) Indeen was not claiming escalation of price beyond the
date of obtaining of the first budgetary offer from ISGEC. It
was not claiming escalation in price at the current rate.
(iii) The fact that offers we re obtained had been proved by the
deposition of witnesses of Indeen.
(iv) Escalation of cost, owing to delay in completion of a
project, was a matter of common knowledge, and was well
understood in the execution of commercial contracts.
(v) In the present case, the delay in the project was owing to
breach of the contract by DIPL.
(vi) The fact that Indeen had paid ₹ 87.51 lakhs to the
Government of Rajasthan, for obtaining extension of time till
31st
December, 2020 to complete the project, indicated that
Indeen was making efforts to launch the project. DIPL had
unjustifiably abandoned the project, leaving Indeen in the lurch
and compelling Indeen to look for another service provider.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 50 of 94 31.5 Having noted these facts, the learned Arbitral Tribunal
proceeded to concl ude, qua Claim 2 of Indeen, thus:
“105. The question is whether escalation should be granted
on the basis of the offers received by the Claimant. The
Tribunal is not inclined to go by the offers obtained by the
Claimant. They do not inspire confidence. But at the same
time the Claimant is entitled to receive reasonable escalation
in cost. It needs to be noted that the consolidated cost of the
abandoned project was pegged at Rs.43357100/- by the
agreement of the parties dated 06.09.2011. As per the
International Monetary Fund figures, the inflation rate was
about 10% in the year 2012, when offers were received by the
Claimant. Therefore the Claimant would be entitled to
receive from the Respondent a sum of Rs.43357100
(433571000 x 1.10-inflation rate for 2012) as extra cost
towards inflation.
Accordingly, the claim is accepted to the extent indicated
above.”
(Emphasis supplied)
31.6 As such, the learned Arbitral Tribunal awarded ₹ 4,33,57,100/
towards Claim No.2 of Indeen.
32.
Re Claim No.3 – Pre-operative expenses
32.1 This claim was rejected by the learned Arbitral Tribunal and
does not, therefore, need to burden the present judgment.
33. In the circumstances, vide para 107, the learned Arbitral
Tribunal proceeded to pass the impugned Award, in t he following
terms:
“107. Having regard to the aforesaid discussions, the
following Award is hereby passed: –
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 51 of 94 i) The Claimant is awarded a sum of Rs.11.37
crores as against the Respondent in respect of Claim
No.1.
ii) The Claimant is awarded a sum of
Rs.43357100/- as against the Respondent in respect of
Claim No.2.
iii) Claim No. 3 is rejected.
iv) The aforesaid amounts awarded in favour of the
Claimant as against the Respondent shall carry interest
@ 8% per annum from the date of filing of the
Statement of Claim i.e. 28.03.2012 to the date of
passing of the Award.
v) The Claimant shall be also entitled to interest @
9% per annum from the date the Claimant files e-stamp
of the requisite value till its realisation of the sums
awarded.”
Analysis
Scope of Section 34
34. Before adverting to the grounds on which EFS has sought to
challenge the impugned award, it would be appropriate to examine
the scope of Section 34 of the 1996 Act.
35. Sub-sections (1) and (2) of Section 34, as amended by the
Arbitration and Conciliati on (Amendment) Act, 2019 , read s thus:
“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).
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 52 of 94 (2) An arbitral award may be set aside by a Court
only if –
(a) the party making the application establishes on
the basis of the record of 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 the dispute
not contemplated by or not falling within the terms of the submission to arbitration, or it
contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters
submitted to arbitration can be separated from
those not so submitted, only that part of the
arbitral award which contains decisions on
matters not submitted to arbitration may be set
aside; or
(v) the composition of the arbitral tribunal or
the arbitral procedure was not in accordance with the agreement of the parties, unless such
agreement was in conflict with a provision of
this Part from which the parties cannot
derogate, or, failing such agreement, was not in
accordance with this Part; or
(b) the Court finds that –
(i) the subject matter of the dispute is not
capable of settlement by arbitration under the
law for the time being in force, or
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 53 of 94
(ii) the arbitral award is in conflict with the
public policy of India.
Explanation 1. – For the avoidance of any
doubt, it is clarified that what is in conflict with
the public policy of India, only if, –
(i) the making of the award was
induced or affected by fraud or
corruption or was in violation of section
75 or section 81; or
(ii) it is in contravention with the
fundamental policy of Indian Law; or
(iii) it is in conflict with the most basic
notions of morality or justice.
Explanation 2. – For the avoidance of
doubt, the test as to whether there is a
contravention with the fundamental policy of Indian Law shall not entail a
review on the merits of the dispute.
(2A) An arbitral award arising out of arbitrations
other than international commercial arbitrations, may also be set aside 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.”
36. Considerable clarity has been infused into the otherwise
ambiguous expressions “public policy of India”, “fundamental policy
of Indian Law”, “most basic notions of morality or justice” and “patent illegality”, by pronouncements of the Supreme Court over a
period of time, of which Ssangyo ng Engineering and Construction
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 54 of 94 Co. Ltd v. N.H.A.I.3
(i) The expression “public policy of India” would have to be
understood as the “fundamental policy of Indian Law”, as
explained in paras 18 and 27 of the earlier decision in Associate
Builders v. D.D. A. may justifiably be regarded as the high
watermark, after the amendment of Section 34. Without burdening this judgement with the reproduction, verbatim, of the relevant
paragraphs from the said decision, the principles enunciated therein
may be enumerated thus:
4
“18. In Renusagar Power Co. Ltd. v. General
Electric Co., 1994 Supp (1) SCC 644, the Supreme
Court construed Section 7(1)(b)(ii ) of the Foreign
Awards (Recognition and Enforcement) Act, 1961:
“7. Conditions for enforcement of forei gn
awards. —(1) A foreign award may not be
enforced under this Act —
***
(b) if the Court dealing with the case
is satisfied that—
***
(ii) the enforcement of the
award will be contrary to the
public policy.”
In construing the expression “public policy” in the
context of a foreign award, the Court held that an
award contrary to
(i) the fundamental policy of Indian law,
(ii) the interest of India,
(iii) Justice or morality, , which read thus:
3 (2019) 15 SCC 131
4 (2015) 3 SCC 49
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 55 of 94 would be set aside on the ground that it would be
contrary to the public policy of India. It went on
further to hold that a contravention of the provisions of
the Foreign Exchange Regulation Act would be
contrary to the public policy of India in that the statute
is enacted for the national economic interest to ensure
that the nation does not lose foreign exchange which is
essential for the economic survival of the nation
(see SCC p. 685, para 75). Equally, disregarding
orders passed by the superior courts in India could also
be a contravention of the fundamental policy of Indian
law, but the recovery of compound interest on interest,
being contrary to statute only, would not contravene
any fundamental policy of Indian law (see SCC pp.
689 & 693, paras 85 & 95).
*****
Fundamental Policy of Indian Law
27. Coming to each of the heads contained in Saw
Pipes [(2003) 5 SCC 705 : AIR 2003 SC 2629]
judgment, we will first deal with the head
“fundamental policy of Indian law”. It has already
been seen from Renusagar judgment that violation of
the Foreign Exchange Act and disregarding orders of
superior courts in India would be regarded as being
contrary to the fundamental policy of Indian law. To
this it could be added that the binding effect of the
judgment of a superior court being disregarded would
be equally violative of the fundamental policy of
Indian law .”
(Emphasis supplied)
(ii) The Court cannot interfere with an Award on the ground
that the arbitrator has not adopted a judicial approach, as that
would amount to intervention on the merits of the award, which
was not permissible post the amendment of Section 34.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 56 of 94 (iii) Violation of the principles of natural justice constitutes a
legitimate ground to challenge an award.
(iv) In understanding whether an award was in conflict with
the “most basic notions of morality or justice”, the Court would
have to be guided by paras 36 to 39 of Associate Builders4
“Justice :
36. The third ground of public policy is, if an award
is against justice or morality. These are two different
concepts in law. An award can be said to be against
justice only when it shocks the conscience of the court.
An illustration of this can be given. A claimant is
content with restricting his claim, let us say to Rs 30
lakhs in a statement of claim before the arbitrator and
at no point does he seek to claim anything more. The
arbitral award ultimately awards him Rs 45 lakhs
without any acceptable reason or justification.
Obviously, this would shock the conscience of the
court and the arbitral award would be liable to be set
aside on the ground that it is contrary to “justice”.
Morality
37. The other ground is of “morality”. Just as the
expression “public policy” also occurs in Section 23 of
the Contract Act, 1872 so does the expression
“morality”. Two illustrations to the said section are
interesting for they explain to us the scope of the
expression “morality”:
“(j) A, who is B’s Mukhtar, promises to
exercise his influence, as such, with B in favour
of C, and C promises to pay 1000 rupees to A.
The agreement is void, because it is immoral.
(k) A agrees to let her daughter to hire
to B for concubinage. The agreement is void,
because it is immoral, though the letting may
not be punishable under the Penal Code, 1860.”
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 57 of 94
38. In Gherulal Parakh v. Mahadeodas
Maiya [1959 Supp (2) SCR 406 : AIR 1959 SC 781],
this Court explained the concept of “morality” thus :
(SCR pp. 445-46 : AIR pp. 797-98)
“Re. Point 3 — Immorality : The argument
under this head is rather broadly stated by the
learned counsel for the appellant. The learned
counsel attempts to draw an analogy from the
Hindu law relating to the doctrine of pious
obligation of sons to discharge their father’s
debts and contends that what the Hindu law
considers to be immoral in that context may
appropriately be applied to a case under Section
23 of the Contract Act. Neither any authority is
cited nor any legal basis is suggested for
importing the doctrine of Hindu law into the
domain of contracts. Section 23 of the Contract
Act is inspired by the common law of England
and it would be more useful to refer to the
English law than to the Hindu law texts dealing
with a different matter. Anson in his Law of
Contracts
states at p. 222 thus:
‘The only aspect of immorality with
which courts of law have dealt is sexual
immorality….’
Halsbury in his Laws of England
, 3rd Edn.,
Vol. 8, makes a similar statement, at p. 138:
‘A contract which is made upon an
immoral consideration or for an immoral
purpose is unenforceable, and there is no
distinction in this respect between
immoral and illegal contracts. The
immorality here alluded to is sexual
immorality.’
In the Law of Contract
by Cheshire and Fifoot,
3rd Edn., it is stated at p. 279:
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 58 of 94 ‘Although Lord Mansfield laid it down
that a contract contra bonos mores is
illegal, the law in this connection gives
no extended meaning to morality , but
concerns itself only with what is sexually
reprehensible.’
In the book on the Indian Contract Act
by
Pollock and Mulla it is stated at p. 157:
‘The epithet “immoral” points, in legal
usage, to conduct or purposes which the
State, though disapproving them, is
unable, or not advised, to visit with
direct punishment.’
The learned authors confined its operation to
acts which are considered to be immoral
according to the standards of immorality
approved by courts. The case law both in
England and India confines the operation of the
doctrine to sexual immorality. To cite only
some instances : settlements in consideration of
concubinage, contracts of sale or hire of things
to be used in a brothel or by a prostitute for
purposes incidental to her profession,
agreements to pay money for future illicit
cohabitation, promises in regard to marriage for
consideration, or contracts facilitating divorce
are all held to be void on the ground that the
object is immoral.
The word ‘immoral’ is a very comprehensive
word. Ordinarily it takes in every aspect of
personal conduct deviating from the standard
norms of life. It may also be said that what is
repugnant to good conscience is immoral. Its
varying content depends upon time, place and
the stage of civilisation of a particular society.
In short, no universal standard can be laid down
and any law based on such fluid concept defeats
its own purpose. The provisions of Section 23
of the Contract Act indicate the legislative
intention to give it a restricted meaning. Its
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 59 of 94 juxtaposition with an equally illusive concept,
public policy, indicates that it is used in a
restricted sense; otherwise there would be
overlapping of the two concepts. In its wide
sense what is immoral may be against public
policy, for public policy covers political, social
and economic ground of objection. Decided
cases and authoritative textbook writers,
therefore, confined it, with every justification,
only to sexual immorality. The other limitation
imposed on the word by the statute, namely,
‘the court regards it as immoral’, brings out the
idea that it is also a branch of the common law
like the doctrine of public policy, and, therefore,
should be confined to the principles recognised
and settled by courts. Precedents confine the
said concept only to s exual immorality and no
case has been brought to our notice where it has
been applied to any head other than sexual
immorality. In the circumstances, we cannot
evolve a new head so as to bring in wagers
within its fold.”
39. This Court has confined morality to sexual
morality so far as Section 23 of the Contract Act, 1872
is concerned, which in the context of an arbitral award
would mean the enforcement of an award say for
specific performance of a contract involving
prostitution. “Morality” would, if it is to go beyond
sexual morality necessarily cover such agreements as
are not illegal but would not be enforced given the
prevailing mores of the day. However, interference on
this ground would also be only if something shocks the
court’s conscience.”
(Emphasis supplied)
Thus, only such arbitral awards which shocks the conscience of
the court, can be set aside on the ground of being in conflict
with the “most basic notions of morality or justice”.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 60 of 94 (v) “Patent illegality” appearing on the face of the awar d
refers to such illegality as goes to the root of the matter, but
which does not amount to be erroneous application of the law.
As such, contravention of a statute not linked to public policy
or public interest, cannot be said to amount to “patent
illega lity”. Mere contravention of the substantive law of India
is no longer a ground available to set aside an arbitral award.
(vi) A Section 34 court cannot re -appreciate evidence, even
on the ground of patent illegality.
(vii) Absence of reasons is, howe ver, a ground to set aside an
award, as it would violate Section 31(3) of the 1996 Act.
(viii) Construction of the terms of the contract is primarily for
the arbitrator to decide. Unless the arbitrator construes the
contract “in a manner that no fair -minded or reasonable person
would; in short, the view of the arbitrator is not even a possible
view to take”, interference is not warranted.
(ix) If the arbitrator wanders outside the contract and deals
with matters not allotted to him, he commits an erro r of
jurisdiction, on which ground the award could be set aside
under Section 34 (2 -A). “Where an Arbitral Tribunal has
rendered an award which decides matters either beyond the
scope of the arbitration agreement or beyond the disputes
referred to the Arb itral Tribunal, as understood in paras 10 and
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 61 of 94 11 of State of Goa v. Praveen Enterprises5, the arbitral award
could be said to have dealt with decisions on matters beyond
the scope of submission to arbitration”. Paras 10 and 11 of
Praveen Enterprises5
(c) Where the parties fail to concur in the
appointment of the arbitrator(s) as required by
the arbitration agreement, or the authority
named in the arbitration agreement failing to
nominate the arbitrator and refer the disputes
raised to arbitration as required by the
arbitration agreement, on an application by an
aggrieved party, the court can appoint the
arbitrator and on such appointment, the disputes read as under:
“10. “Reference to arbitration” describes various
acts. Reference to arbitration can be by parties
themselves or by an appointing authority named in the
arbitration agreement or by a court on an application
by a party to the arbitration agreement. We may
elaborate:
(a) If an arbitration agreement provides that
all disputes between the parties relating to the
contract (some agreements may refer to some
exceptions) shall be referred to arbitration and
that the decision of the arbitrator shall be final
and binding, the “reference” contemplated is the
act of parties to the arbitration agreement,
referring their disputes to an agreed arbitrator to
settle the disputes.
(b) If an arbitration agreement provides that
in the event of any dispute between the parties,
an authority named therein shall nominate the
arbitrator and refer the disputes which required
to be settled by arbitration, the “reference”
contemplated is an act of the appointing
authority referring the disputes to the arbitrator
appointed by him.
5 (2012) 12 SCC 581
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 62 of 94 between the parties stand referred to such
arbitrator in terms of the arbitration agreement .
11. Reference to arbitration can be in respect of all
disputes between the parties or all disputes regarding a
contract or in respect of specific enumerated disputes.
Where “all disputes” are referred, the arbitrator has the
jurisdiction to decide all disputes raised in the
pleadings (both claims and counterclaims) subject to
any limitations placed by the arbitration agreement.
Where the arbitration agreement provides that all
disputes shall be settled by arbitration but excludes
certain matters from arbitration, then, the arbitrator
will exclude the excepted matter and decide only those
disputes which are arbitrable. But where the reference
to the arbitrator is to decide specific disputes
enumerated by the parties/court/appointing authority,
the arbitrator’s jurisdiction is circumscribed by the
specific reference and the arbitrator can decide only
those specific disputes.”
If an arbitrator wandered outside the contract and dealt with
matters not allotted to him, it would constitute a jurisdictional
error, correctable on the ground of “patent illegality”, but would
not amount to dealing with matters beyond the scope of the
arbitration agreement.
(x) Perversity in an award, though not a ground to challenge
the award as being contrary to the “public pol icy of India”,
certainly amounts 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 t he ground of
patent illegality.” “A finding based on documents taken
behind the back of the parties by the arbitrator would also
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 63 of 94 qualify as a decision based on no evidence inasmuch as such
decision is not based on evidence led by the parties, and
therefo re, would also have to be characterised as perverse.”
(xi) Failure, by an Arbitral Tribunal to deal with every issue
referred to it will not ordinarily render its arbitral award liable
to be set aside. The crucial question in every case is whether
there has been real or actual prejudice to either (or both) of the
parties to the dispute. The following passage, from Redfern
and Hunter
This principle, though not directly forming part of the
enunciation of the law by the Supreme Court in Ssangyong
Engineering and Construction Co. Ltd was cited, with approval, in this regard:
“The significance of the issues that were not dealt with
has to be considered in relation to the award as a
whole. For example, it is not difficult to envisage a
situation in which the issues that were overlooked
were of such importance that, if they had been dealt
with, the whole balance of the award would have been
altered and its effect would have been different.”
(Emphasis supplied)
3, finds place in the
ruling of the Court of Appea l of Singapore in CRW Joint
Operation v. PT Perusahaan Gas Negara (Persero) TBK6,
which has been reproduced in para 61 of the report in
Ssangyong Engineering and Construction Co. Ltd3
6 2011 SGCA 33 , obviously
with approval.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 64 of 94 37. These principles stand, inter alia, reiterated in the recent
decision of the Supreme Court in Anglo American Metallurgical Coal
Pty Ltd v. MMTC Ltd.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 , paras 51 and 52 of which read thus:
“51. The judgment in Associate Builders (supra) examined
each of the heads set out in Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644, together with
the addition of the fourth head of “patent illegality” laid down
in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705. Since we
are concerned with the “perversity principle”, the relevant
paragraphs of this judgment are set out as follows:
“29. It is clear that the juristic principle of a “judicial
approach” demands that a decision be fair, reasonable
and objective. On the obverse side, anything arbitrary
and whimsical would obviously not be a determination
which would either be fair, reasonable or objective.” (page 75)
“31. The third juristic principle is that a decision
which is perverse or so irrational that no reasonable
person would have arrived at the same is important and
requires some degree of explanation. It is settled law
that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account
something irrelevant to the decision which it
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 2020 SCC OnLine SC 1030
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 65 of 94 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.”
In Kuldeep Singh v. Commr. of Police, (1999) 2 SCC
10, it was held : (SCC p. 14, para 10)
“10. A broad distinction has, therefore, to be
maintained between the decisions which are
perverse and those which are not. If a decision
is arrived at on no evidence or evidence which
is thoroughly unreliable and no reasonable
person would act upon it, the order would be
perverse. But if there is some evidence on
record which is acceptable and which could be
relied upon, howsoever compendious it may be,
the conclusions would not be treated as perverse
and the findings would not be interfered with.”
33. It must clearly be understood that when a court
is applying the “public policy” test to an arbitration
award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A
possible view by the arbitrator on facts has necessarily
to pass muster as the arbitrator is the ultimate master of
the quantity and quality of evidence to be relied upon
when he delivers his arbitral award. Thus an award
based on little evidence or on evidence which does not
measure up in quality to a trained legal mind would not
be held to be invalid on this score. Once it is found that
the arbitrators approach is not arbitrary or capricious,
then he is the last word on facts. In P.R. Shah, Shares
& Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd.
[(2012) 1 SCC 594], this Court held : (SCC pp. 601-
02, para 21)
“21. A court does no t sit in appeal over the
award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be
challenged only under the grounds mentioned in
Section 34(2) of the Act. The Arbitral Tribunal
has examined the facts and held that both t he
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 66 of 94 second respondent and the appellant are liable.
The case as put forward by the first respondent
has been accepted. Even the minority view was
that the second respondent was liable as claimed
by the first respondent, but the appellant was
not liable only on the ground that the arbitrators
appointed by the Stock Exchange under Bye-law 248, in a claim against a non- member, had
no jurisdiction to decide a claim against another
member. The finding of the majority is that the
appellant did the transaction in the name of the
second respondent and is therefore, liable along
with the second respondent. Therefore, in the
absence of any ground under Section 34(2) of
the Act, it is not possible to re-examine the facts
to find out whether a different decision can be
arrived at.”
34. It is with this very important caveat that the two
fundamental principles which form part of the fundamental policy of Indian law (that the arbitrator
must have a judicial approach and that he must not act perversely) are to be understood.” (pages 75-77)
“42. In the 1996 Act, this principle is substituted by
the “patent illegality” principle which, in turn, contains
three subheads:
42.1. (a) A contravention of the substantive law of
India would result in the death knell of an arbitral
award. This must be understood in the sense that such
illegality must go to the root of the matter and cannot be of a trivial nature. This again is really a
contravention of Section 28(1) (a) of the Act, which
reads as under:
“28. Rules applicable to substance of
dispute. — (1) Where the place of arbitration is
situated in India —
(a) in an arbitration other than an
international commercial arbitration, the
Arbitral Tribunal shall decide the dispute
submitted to arbitration in accordance
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 67 of 94 with the substantive law for the time
being in force in India;”
42.2. (b) A contravention of the Arbitration Act itself
would be regarded as a patent illegality – for example
if an arbitrator gives no reasons for an award in
contravention of Section 31(3) of the Act, such award
will be liable to be set aside.
42.3. (c) Equally, the third subhead of patent illegality
is really a contravention of Section 28(3) of the
Arbitration Act, which reads as under:
“28. Rules applicable to substance of
dispute –
(1)-(2)***
(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.”
This last contravention must be understood with a
caveat. An Arbitral Tribunal must decide in accordance
with the terms of the contract, but if an arbitrator
construes a term of the contract in a reasonable
manner, it will not mean that the award can be set aside
on this ground. Construction of the terms of a contract
is primarily for an arbitrator to decide unless the
arbitrator construes the contract in such a way that it
could be said to be something that no fair- minded or
reasonable person could do.” (page 81)
52. This judgment has been consistently followed in a
plethora of subsequent judgments, including:
“a. National Highways Authority of India v. ITD
Cementation India Ltd., (2015) 14 SCC 21 at
paragraph 24 (page 38);
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 68 of 94 b. Centrotrade Minerals & Metal Inc. v.
Hindustan Copper Ltd., (2017) 2 SCC 228 at
paragraph 45 (page 25 2);
c. Venture Global Engg. LLC v. Tech Mahindra
Ltd., (2018) 1 SCC 656 at paragraph 85 (page 687);
d. Sutlej Construction Ltd. v. State (UT of
Chandigarh), (2018) 1 SCC 718 at paragraph 11 (page
722);
e. Maharashtra State Electricity Distribution Co.
Ltd. v. Datar Switchgear Ltd., (2018) 3 SCC 133 at
paragraph 51 (page 169);
f. HRD Corpn. v. GAIL (India) Ltd., (2018) 12
SCC 471 at paragraphs 18-19 (page 493);
g. M.P. Power Generation Co. Ltd. v. ANSALDO
Energia SpA, (2018) 16 SCC 661 at paragraph 25
(page 679);
h. Shriram EPC Ltd. v. Rioglass Solar Sa, (2018)
18 SCC 313 at paragraph 34 (page 328);
i. State of Jharkhand v. HSS Integrated Sdn,
(2019) 9 SCC 798 at paragraph 7 (page 804); and
j. Ssangyong Engg. & Construction Co. Ltd. v.
NHAI, ( 2019) 15 SCC 131 at paragraphs 20, 34-36
(pages 154, 169-170).”
(Emphasis as in original)
38. In addition to the propositions emanating from the above
decisions, and partly by way of repetition thereof, the following basic
principles may be said to perme ate the exercise of jurisdiction, under
section 34:
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 69 of 94 (i) The Arbitral tribunal is the final arbiter of the facts and
the law. Ordinarily , conclusions of fact, or law, at which the
arbitral tribunal arrives, are not amenable to interference under
Section 34.
(ii) This principle is, however, not absolute, but is subject to
the following exceptions/caveats:
(a) Where the conclusion of the arbitral tribunal,
whether on facts or on law is perverse, it merits
interference. Perversity, in such a case must b e of such a
degree that no reasonable man, conversant with the facts and the law, would arrive at such a decision. (b) If the findings of the arbitral tribunal are contrary
to the contract between the parties, the court is bound to
interfere. This is, e ssentially, because the arbitral
tribunal draws its jurisdiction from the contract, and is a
creature thereof. The arbitral tribunal, cannot, therefore,
arrive at a conclusion which militates against the terms of
the contract between the parties, merely to do equity, or
for any other reason.
(c) Similarly, if the conclusion of the arbitral tribunal
is contrary to the law laid down by the Supreme Court,
or any other binding judicial precedent, the court can interfere. This is because any conclusion, by the arbitral
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 70 of 94 tribunal, which is contrary to the extant law, is treated as
violative of public policy, which is a well settled ground for interference with the award.
(iii) In other cases, as already noted above, ordinarily,
interference with the arbi tral award is to be scrupulously
eschewed. Having elected to resolve their disputes by
arbitration, the parties are ordinarily expected to defer to the
decision of the arbitrator. Awards of arbitral tribunals cannot be likened with judgments of courts, which are susceptible to
appeal. Else, the very raison d’etre of the establishment of the
arbitral institution would stand defeated. (iv) The court is not, therefore, entitled to sit in appeal over
the decision of the arbitral tribunal. Neither can the cou rt re-
appreciate the evidence, which has been appreciated by the
arbitral tribunal. If, however, the arbitral tribunal ignores
material evidence, that would amount to “perversity”, which would invite interference under Section 34. If all the evidence
has been examined by the arbitral tribunal, the court cannot
interfere on the ground that the examination of the evidence, as undertaken by the arbitral tribunal, is not, to its mind, satisfactory or sufficient. Nor can the court substitute its own view for t he view of the arbitral tribunal, on the ground that, in
its perception, the view of the court is “better” or “more appropriate”.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 71 of 94 39. These principles, however , it may be clarified, pertain to the
scope of interference with arbitral awards, by courts, on merits. These
are apart from the other well established grounds on which the court
may interfere, such as misconduct by the arbitrator, bias or prejudice
or conducting of the arbitral proceedings in violation of the principles
of natural justice, to refer to a few.
40. The challenge by EFS to the impugned award of the learned
arbitral tribunal has, therefore, to be examined in the light of the
above principles.
Grounds of Challenge, and Analysis thereof
41. I deem it appropriate to consider the grounds of challenge, by
EFS, to the impugned award, seriatim, after setting out the rival
contentions, qua each ground, where necessary.
42. EFS has, at the outset, sought to urge, yet again, the pre liminary
contention that the SCA had not come into force and that the contract
agreements had not been finally executed, but were still at the draft
stage and were, therefore, unenforceable. Re. Enforceability of the SCA and the Contract Agreements
43. As is apparent from a reading of the impugned award, as wel l as
the discussion in that regard hereinabove, it is clear that the learned
arbitral tribunal proceeded on the ground that this court, in its earlier
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 72 of 94 decision dated 24th July 2019, in Arb. A. (Comm) 39/2016, had
effectively held the SCA and the three con tract agreements, to have
been validly executed and to be effective.
44. The findings of the learned Arbitral Tribunal, as contained in
paras 35, 36 (i), 36 (ii), 37, 38, 41 and 43 of the impugned award stand extracted in para 2 8 supra . I am entirely in agreement to the findings
of the learned arbitral tribunal, as contained in the afore -extracted
paragraphs, which, in turn, correctly rely on the earlier judgment of
this court dated 24
th July, 2019, in Arb. A. (Comm) 39/2016. The
submission as advanced by Mr. Dayan Krishnan, is, essentially, a
fourth bite at the cherry. The spectre of this submission stood effectively exorcised by this court in its judgment dated 24
th
July,
2019, in Arb. A. (Comm) 39/2016, and cannot, in my view, be revived.
45. I, ther efore, entirely concur with the finding of the learned
arbitral tribunal that the SCA, as well as the contract agreements, were executed and were valid and enforceable at law.
Re. Clauses 11.2 to 11.4 of the SCA – arguments regarding limitation
of liabili ty
46. The first submission advanced by Mr. Dayan Krishnan, on the
merits of the impugned award, was that, in awarding ₹ 11.37 crores
and ₹ 4,33,57,100/ – to Indeen, in respect of the Claim No. 1 and Claim
No. 2, the learned Arbitral Tribunal had acted in violation of Clauses
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 73 of 94 11.2 of the SCA, which capped the liability of DIPL, even in the case
of default on its part. Clau se 11.2 of the SCA read as under:
“The total liability of Daikia to Indeen in respect of the Power
Plant, under or, in connection with the Contract Agreements
shall not exceed 10% of Consolidated Contract Price save and
except in case of rejection of the Power Plant by Indeen (as
per the conditions stipulated herein) in which case Indeen
shall be entitled to draw the 20% bank guarantees as
mentioned in Clause 6.6.”
47. Mr. Dayan Krishnan acknowledges the fact that Clause 11.4 of
the SCA carved out certain exceptions to Clause 11.2. Clause 11.4 of
the SCA read thus:
“This Sub-Clause shall not limit liability in any case of fraud,
deliberate default or reckless misconduct by the defaulting
party.”
Mr. Dayan Krishnan’s submission is that Clause 11.4 of the SCA does
not apply in the present case at all, as there is no specific finding of
fraud, deliberate fraud or reckless misconduct by DIPL. He submits
that isolated and stray criticisms, by the learned Arbitral Tribunal,
cannot suffice to make out the case of “fraud, deliberate default or
reckless misconduct”. The absence of any specific finding of mens
rea, against DIPL, by the learned Arbitral Tribunal, according to Mr.
Krishnan, is sufficient to discountenance the applicability of Clause
11.4. Mr. Kris hnan points out that the applicability of Clause 11.4,
vis-à-vis Clause 11.2 had been specifically raised, by Indeen, in para
21 of its statement of claim, to which EFS duly responded, in the
corresponding paragraph of its statement of defence. Para 21 of the
statement of claim of Indeen and corresponding paragraph 21 of the
statement of defence of EFS may be reproduced thus:
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 74 of 94
Para 21 of Statement of Claim of Indeen
:
“21. In normal circumstances the Claimant submits that the
delay clause set out in Clause 8 would apply alongwith the
limitation of liability set out in Clause 11. The Claimant
submits that the Clause 11 squarely does not apply in view of
Clause 11.4. The Claimant submits that by any standards the
Respondents conduct of continuing to negotiate agreements
with the Claimant over a long period of time when in fact
they had no intention of fullfiling their obligations would be
covered under fraud/deliberate default/reckless misconduct as
characterized in Clause 11.4. The Claimant submits that
infact their(sic) can be no other explanation for the
respondents conduct in simply walking out of the Claimants
project. The Claimant submits that in the event the
Respondent provides any explanation the Claimant craves
liberty to reply to the same in rejoinder as both under the Sec.
9 and 11 proceedings in the Hon’ble Delhi High Court, the
Respondent has not offered any explanation regarding its
conduct.”
Para 21 of Statement of Defence of EFS
:
“21. That the contents of para 21 of the Statement of Claim
are wrong and vehemently denied. It is specifically denied
that the Respondents had no intention of fulfilling their
obligations and their conduct amounted to fraud/deliberate,
default/reckless misconduct as characterised under Clause
11.4 of the SCA. It is submitted that Respondent reserves its
right to sue for appropriate damages against the Claimant
before the appropriate forum for making such defamatory
remarks without any basis whatsoever. It is submitted that the
SCA is not an effective and binding contract between the
Claimant and the Respondent. Further, without prejudice to
this, it is submitted that even otherwise the Claimant has
miserably failed to prove its allegations of any fraud or
misconduct by the Respondent and hence the Claimant is
precluded from relying upon Clause 11.4 of the SCA. Despite
sincere efforts made by the Respondent, parties could not
achieve concurrence/agreement over all the terms and
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 75 of 94 conditions of the proposed Contract Agreements and
therefore the negotiations never materialised into a contract
leave alone an effective and binding contract. It is humbly
submitted that the Respondent was always willing to
participate in the Claimant’s project and perform its
obligations under the draft agreements, however, because of
the pressure tactics adopted by the Claimant and stubborn
attitude of the Claimant, the same could not materialise.
Further, it is well settled law that no one can be forced to
enter into a contract. To constitute a valid contract, free
consent is required. At the cost of repetition it is reiterated
that in the present case there is no agreement between the
Parties.”
Awarding of ₹ 11.37 crores being in excess of the cap on liability, as
envisaged by Clause 11.2 of the SCA, Mr. Krishnan submits that it
merits interference, by this Court, under Section 34 of the 1996 Act.
48. Mr. Hiroo Advani, learned counsel for Indeen, advances the
following submissions by way of response to the contentions of Mr.
Dayan Krishnan:
(i) There was a clear finding, both by this Court in its
judgment dated 24th July, 2019 in Arb. A. (Comm) 39/2016, as
well as by the learned Arbitral Tribunal, of infract ion, by DIPL,
of the terms of the PDA and the SCA. Mr. Advani points out
that Clause 5.1 of the SCA specifically proscribed assignment
of the agreement, by DIPL, without the consent of Indeen. By
assigning the contract to EFS, therefore, DIPL clearly violated
the SCA. This amounted to repudiation of the contract. Mr.
Advani points out that, in para 4 of the notice invoking
arbitration dated 28th March, 2012, Indeen had specifically
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 76 of 94 informed DIPL that it had contracted with DIPL as DIPL was
part of the Veolin Group, which was a global industrial leader,
and that Indeen was not interested in contracting with any
successor company. In these circumstances, the assignment of
the contract, by DIPL to EFS, submits Mr. Advani, amounted to
“deliberate default”, as well as “reckless misconduct”, within the meaning of Clause 11.4 of the SCA. He submits that the
expressions “deliberate default” and “reckless misconduct” are
required to be construed ejusdem generis and noscitur a sociis.
(ii) To support his submi ssions, Mr. Advani relies on the
findings of this Court in para 38.2 of its judgment dated 24
th
July, 2019 ( supra ) in Arb. A. (Comm) 39/2016. However, as,
in my view, the said paragraph does not return any finding on deliberate infraction, by DIPL, of any covenant in the PDA or
the SCA, it is not necessary to refer thereto. Mr. Advani,
however, also relies on the following findings, of the learned
Arbitral Tribunal, contained in paras 41(vi), 42 and 43 of the impugned award:
“41(vi) Daikia abandoned the contract by its wrongful
act and thereby prevented the claimant from issuing the
NTP. Therefore, it cannot be allowed take advantage
of its own wrong by taking shelter behind the argument
that the SCA and the Contract Agreements did not come into force without the issuance of NTP.
42. The Daikia/DIPL in breach of the contract by an
indirect way assigned the contract in question to the
Respondent, a non Daikia Company.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 77 of 94 43. Thus, it stands determined that the SCA and the
three Contract Agreements were executed. Their
existence and effectiveness is no longer in dispute.”
(iii) Mr. Advani further relies on the following findings of the
learned Arbitral Tribunal in the impugned award:
“It is intriguing that on 16.03.2012 the parties arrived
at the Contract Agreements and thereafter in four days
or so, Daikia took a decision to quit India and sold its
shareholding to EFS vide Sale Purchase Agreement
dated 29.03.2012. Daikia made it impossible for the
Claimant to issue NTP. Therefore, it cannot claim that
the agreements did not trigger because NTP was not
issued by the Claimant. It is well settled that no one
can take advantage of its own wrong. DIPL exited
India without caring to discharge its contractual
obligations arising from the SCA and the Contract
Agreements. This was an act of
renunciation/repudiation. It was in breach of its
contractual obligations under the SCA and the
Contract Agreements. The following observations of
the Tribunal found in the order dated 15.09.2016 have
acquired a fresh dim ension in view of the Appellate
order:
“103. ……..On the one hand, Daikia was negotiating
with the Claimant and on the other hand extricating itself from the Respondent. On March 10, 2011 Daikia
had written a letter to SBI stating that the legal draft of
the EPC contract is with the lawyers in Paris for final vetting before document could be signed. The letter
also states that the estimated contract value had been
finalized. It may be recalled that during the same time,
Daikia International was negotiating with EFS,
Mauritius for sale of 100% shares of Daikia to it
without disclosing this to the Claimant. The factum of
negotiations and sale of its total shareholding is evident
from the Share Purchase Agreement dated March, 29,
2012 between Daikia International SA, Cadrazur and
Daikia India Pvt. Ltd. On the one hand and EFS
Services Facilities Ltd., Mauritius on the other. The
Share Purchase Agreement reveals that the process of
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 78 of 94 negotiations between Daikia and EFS Mauritius started
with the offer of the latter dated January 3, 2012. The
three agreements were initialled on March 16, 2012.
All this was going on without even giving any inkling
of it to the Claimant. Silence does not normally
amount to misrepresentation but reticence must be
considered as antithetic to fairness. Daikia’s conduct
leaves much to be desired. It’s conduct ought to have
been impeccable but unfortunately it was not so…..””
Mr. Advani points out that by opining that
(i) DIPL took a decision to quit India four days after
the Contract Agreements had been signed, thereby
rendering it impossible for Indeen to issue Notice To
Proceed,
(ii) no one could take advantage of its own wrong,
(iii) the act, of DIPL, in exiting India, without caring to
discharge its contractual obligations arising out of the SCA and the Contract Agreements, was an act of renunciation and repudiation, in breach of the SCA and the Contract Agreements,
(iv) Daikia was simultaneously negotiating with, and
extricating itself from its relationship wi th, Indeen and,
even while writing to the SBI to the effect that the EPC
contract with Indeen was in the process of finalization,
was negotiating with EFS for sale of its entire shares to
EFS without disclosing this fact to Indeen, which amounted to misrepresentation an “antithetic to fairness” and
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 79 of 94 (v) the conduct of DIPL left much to be desired and
could not be recorded as impeccable, which it ought to
have been,
the learned Arbitral Tribunal had effectively questioned the bonafides of DIPL, in its rela tionship with Indeen. It could not,
therefore, according to Mr. Advani, be sought to be contended that there was no finding of “deliberate default” by DIPL, of its
obligations under the PDA or the SCA. “Deliberate default”,
submits Mr. Advani, relying for the purpose, on De Beers UK
Ltd. (formerly Diamond Trading Co. Ltd.) v. Atos Origin IT
Services UK Ltd.
8, was a specie of indiscretion inferior to fraud
or wilful misconduct. Mr. Advani also relies, in this context, on
the decision in Kudos Catering (UK ) Ltd. v. Manchester
Central Convention Complex Ltd9
49. I am unable to subscribe to the submission, of Mr. Dayan
Krishnan, that the lea rned Arbitral Tribunal had violated Clause 11.2
of the SCA. Clause 11.4 clearly carves out an exception from Clause .
(v) Mr. Advani contends, as his final submission on this
issue, that no argument, regarding limitation of liability or Clause 11.2 of the SCA was ever advanced by EFS before the learned Arbitral Tribunal. He contends that it is not
permissible, therefore, for EFS to raise this argument, for the
first time, before this Court, as a ground to challenge the
impugned award.
8 2010 EWHC 3276 (TCC)
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 80 of 94 11.2, in cases of “fraud, deliberate default or reckless misconduct by
the defaulting party”. While it may be arguable as to whether DIPL
has been found, by the learned Arbitral Tribunal, as guilty of “fraud”,
or “reckless misconduct”, the findings of the learned Arbitral
Tribunal, in my considered opinion, are sufficiently comprehensive to amount to a finding of “deliberate default”, on the part of DIPL.
50. The expression “deliberate default” is not a term of art. The
words “deliberate” and “default” have their own well -known
etymological connotations. I am in agreement with Mr. Advani that
the observations and findings returned by the learned Arbitral
Tribunal, in the passages, from the impugned Award, extracted in para
49 (iii) supra , clearly amount to a finding of “deliberate default”.
There is no legal requirement for a pointed finding of mens rea to
have to be returned by the lear ned Arbitral Tribunal. The elements
culled out, by Mr. Advani, from the impugned Award, as enumerated
in para 49(iii) supra are, in my opinion, sufficient to amount to a
finding of “deliberate default” on the part of DIPL, within the meaning
of Clause 11. 4 of the SCA. That being so, it cannot be said that the
amounts awarded by the learned Arbitral Tribunal were in derogation
of Clause 11.2 of the SCA. This submission of Mr. Dayan Krishnan,
therefore, is rejected.
Re. argument regarding the SCA constituting the “entire agreement”
between the parties
9 (2013) EWCA Civ 38.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 81 of 94 51. Mr. Dayan Krishnan advances, as his second ground of
challenge to the impugned Award, the contention that the learned
Arbitral Tribunal erred in awarding Claim 1 to Indeen on the basis of
the Reference Business Plan and the Plant Project Profit and Loss
Account. In this regard, Mr. Krishnan submitted thus:
(i) The learned Arbitral Tribunal had held, in paras 92 and
93 of the impugned Award, as under:
“92. There can be no quarrel with the proposition
that party that claims damages for loss of profit must
base its claim on evidence. In the case in hand the best
evidence is the Reference Business Plan which was
prepared by the Respondent. On the appreciation of
the evidence on record there is no doubt that the
Business Reference Plan Exhibit C- 22 (Pages 712-714
of the SoC) is part of the PDA and was prepared by
Daikia and the Respondent has not been able to
disprove its authenticity. The figure relating to loss of
profit has been computed according to the Reference
Business Plan. Keeping in view the period 2012-13 to
2014-15, the total loss of profit according to the Final
Business Plan for a period of two and a half years
works out to Rs.12.19 crores. But the Claimant has
claimed a lower amount of Rs.11.37 crores as loss of
profit on account of generation loss. This figure was
neither disputed in the SOD nor was it challenged
during cross examination of the witnesses of the
Claimant. The basis of the Claim is that had Daikia
completed the project as per the Reference business
plan the Claimant would have earned a profit of
Rs.11.37.
93. In the circumstances the Tribunal is of the view
that claim based on the Reference Business Plan issued
by the Respondent is tenable.”
Mr. Krishnan submits that the Ref erence Business Plan was an
annexure to the PDA (as evident from Clause E towards the
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 82 of 94 commencement of the PDA), which was executed on 2nd May,
2010. As against this, he submits, the arbitral proceedings were
relatable to the SCA, which was signed on 8th September, 2011.
Mr. Krishnan points out that under Article 3.1 of the PDA, the PDA would continue to remain in force till (a) August 2
nd, 2010
or (b) the execution of the agreements mentioned in EPC Agreement and O & M Agreement, whichever is earlier. As
such, submits Mr. Krishnan the PDA could not continue beyond 2
nd
(ii) Mr. Krishnan draws my attention to Question 137 put to
CW-1 Mr. Mahesh Mansukhani, and the response of CW -1
thereto, which reads thus: August, 2010.
“Q.137 Shown Exhibit C-1 (page 30 of SOC). Can you
state the budgetary offer of the EPC under the PDA?
Ans. Budgetary offer, Exhibit C-22 is part of the
PDA Exhibit C-1 and mentions the price.”
Clearly, therefore, submits Mr. Krishnan that it was an acknowledged contractual reality that t he Reference Business
Plan constituted an annexure to the PDA.
(iii) Mr. Dayan Krishnan now draws my attention to Clause
13.2 and 13.4 of the SCA which read thus:
“13.2 Dispute Resolution: All disputes,
controversies, claims or counter claims resulting from the Contract Agreement or relating to the Contract
Agreement or to a breach of this Agreement, to its
rescission or its invalidity, shall be settled by
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 83 of 94 arbitration in accordance with the (Indian) Arbitration
and Conciliation Act, 1996 as amended from time to
time. There shall be three arbitrators. The seat of
arbitration shall be New Delhi, India. The language
used for the arbitration procedure shall be English. The
Contract Agreement shall be governed by the laws of
India.
*****
13.4 Entire Agreement: Contract Agreements along
with this Agreement constitutes the entire agreement
between the Parties and sets out a full statement of the
contractual rights and liabilities of Indeen and Daikia.”
Juxtaposing these two clauses of the SCA, Mr. Krishnan
conte nds that the SCA alongwith the Contract Agreements
represented the “entire agreement” between DIPL and Indeen, under which the arbitral proceedings had been instituted and were continued. He took me, thereafter to the definition of “Contract Agreements” as contained in Clause 1.2 of the SCA
which reads as under:
“1.2 “Contract Agreements” shall mean Works
Contract Agreement, Service Contract Agreement and
Supply Contract Agreement, proposed to be executed
between Indeen and Daikia in a mutually agreed f orm.”
From Clause 1.2, Mr. Krishnan proceeded to Clause 2 of the
SCA, which set out the indicia of the Contract Agreements to be executed between DIPL and Indeen. As such, contends Mr.
Krishnan, the PDA did not constitute any part of the agreements
betw een the EFS and Indeen which were entirely circumscribed
by the SCA and the Contract Agreements. The arbitral
proceedings also having been initiated under the SCA, the
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 84 of 94 submission of Mr. Krishnan is, essentially, that the learned
Arbitral Tribunal fundamentally erred in relying on the Reference Business Plan which constituted an annexure to the
PDA and was not part of the SCA, to award Claim 1 to Indeen.
He has also relied, in this context, on the order dated 21
st
(iv) To support his argument, premised on the “entire
agreement” clause contained in the SCA, Mr. Dayan Krishnan
relies on the judgment of this Court in Thyssen Krupp
Materials AG v. SAIL
January, 2013, of this Court in Arb. P. 184/2012, which clearly notes that the arbitration was relatable to Clause 13.2 of the
SCA.
10, and of the Supreme Court in Joshi
Technologies International Inc v. U.O.I.11
.
(v) Though this specific argument was advanced before the
learned Tribunal and noted in the impugned Award, there is no
finding thereon. According to Mr. Krish nan, this is a fatal
infirmity which vitiates the impugned Award in t oto.
52. In response to this submission, Mr. Hiroo Advani contends thus:
(i) The reliance, by DIPL, on Clause 13.4 of the SCA, to
contend that the Contract Agreement constituted the entir e
agreement between the parties was misplaced. He submits that such an “entire agreement” Clause would stand infracted only
10 2017 SCC OnL ine Del 7997
11 (2015) 7 SCC 728
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 85 of 94 where an attempt was made to subtract from the agreement. In
this context, Mr. Advani invites my attention to paras 41 to 45 of the Statement of Claim, which read thus:
“41. The first claim relates to the loss in revenue of
power generation caused to the Claimant due to the exit of the Respondent. The PDA was signed on
02.05.2010 showing an EPC Cost of Rs 46.32 Crores with projected ROE of 23.44%. The EPC cost agreed
between Claimant and the Respondent as per the SCA signed on 08.09.2011 was Rs 43.35 Crores. The
difference is on account of shifting of some scope of
work from EPC to the Claimant.
42. The Cost of Project submitted to SBI In October
2011 (post signing SCA) was Rs 51.00 Crores. The
Project Cost included the following components which
were outside the Scope of EPC Contract Price:
Land & Land Development – Rs 0.85 Crores
Change of Scope of Work – Rs 0.50 Crores
Pre-operative & Site Management – Rs 2.00
Crores
Interest during Construction – Rs 1.66 Crores
Margin Money for Working Capital – Rs 2.64
Crores
Total Scope of Indeen (Claimant) – Rs 7.65
Crores.
43. As per the Respondents representations the
Project would be oper ational by September 2012, the
net profit after indicated would be:
Row
No. 2012 –
13 2013 –
14 2014 –
15 2015 –
16
21 Net Profit
After Tax -2.01 3.42 3.85 4.27
16 Depreciation 2.37 .237 2.37 2.37
Total Cash 0.36 5.79 6.22 6.64
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 86 of 94 Surplus
44. However due to the deliberate delays
attributable to the Respondent even as per most
optimistic situations, the earliest date of finding a
contractor and finalizing the terms of engagement for
the Project would be at least 6 months. This means that
the Project is delayed by at least 2 ½ years consequent
to Respondent’s asking for splitting the single EPC
agreement into the three Contract Agreements in
September 2011. Considering that the Commercial
operations would now start by April 2014 (with an implementation period of 18 months), Claimant would
lose the entire Net Project Revenue from generation of
Rs 12.37 Crores (0.36+5.79+6.22) during 2 ½ year
period of 2012 -13 to 2014-15. Even if it is assumed
that Claimant makes a cash surplus of Rs 1.00 Crore in 2014-15 (being a full year’s operation as compared to
Rs 0.36 Crores in 6 months operation in 2012-13) the
Net Claim would be Rs 11.37 Crores. The claimant is
annexing a sheet which contains the reference business
plan and which also contains the projections and
tabulations for CLAIM 1 as ANNEXURE –
C25(COLLY).
CLAIM 2: Escalation of Cost
45. The second claim relates to the cost escalation
which has been caused due to the illegal and unilateral
exit of the Respondent from the Project. Here it is
pertinent to mention that under Clause 4.2 of the SCA
the costs were agreed to by the Claimant and the
Respondent way back on 8th September, 2011 based
on prices which were finalized on the basis of
negotiations in early 2011.”
Mr. Advani points out that, in the corresponding paragraphs of
the Statement of Defence filed by it, EFS never sought to question the quantum of damages claimed by Indeen.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 87 of 94 (ii) Similarly, Mr. Advani points out that exhaustive evidence
was led, by Indeen, to substantiate its claim of ₹ 11.37 crores,
and EFS did not choose to cross examine Indeen’s witnesses in
that regard. He relies on the findings, of the learned Arbitral
Tribunal, as contained in paras 75, 84 to 87, 92, 93 and 95.1 of
the impugned Award, which held the Reference Business Plan
to const itute a valid basis for computation of the loss suffered
by Indeen, as a consequence of DIPL exiting the project.
(iii) The learned Arbitral Tribunal had not awarded Claim 1 to
Indeen solely on the basis of the Reference Business Plan. It
had also taken into account the fact that there was no traversal,
by EFS, of the assertion, by Indeen, in its Statement of Claim,
that it was entitled to the compensation for the loss suffered by
it, or even to the quantum of such loss. He pointed out that the
learned Arbitral Tribunal had proceeded by appreciating the
entire evidence holistically, and that it also relied on judgments
of the Supreme Court, to that effect.
53. I have considered the submissions of both sides. The learned
Arbitral Tribunal has itself acknowle dged, correctly, the fact that the
Reference Business Plan was part of the PDA. This is also apparent from Clause ‘E in the recitals with which the PDA commences. Mr. Dayan Krishnan has contended that Clause 13.2 of the SCA states,
unambiguously, that the SCA, read with the Contract Agreements,
constituted the “entire agreement” between the parties. He has also invited my attention to the judgements which, in his submission,
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 88 of 94 proscrib e reliance on material outside the agreement which
contractually constit utes the “entire agreement”. Whether the
submission is right, or wrong, is not for me to opine upon, as the
learned Arbitral Tribunal would first have to take a view thereon. The
jurisdiction of this Court, under Section 34 of the 1996 Act, does not include the authority to act as an arbitrator, qua issues which have not
been decided in the arbitral award under challenge . Para 58 of the
impugned Award specifically records th is submission, as having been
advanced before the learned Arbitral Tribunal, thus, by EFS:
“According to the learned counsel for the Respondent the
alleged reference business plan was not part of the SCA. This
being the position, the Reference Business plan cannot be
relied upon as SCA represents the entire agreement between the parties. The alleged assurances given during the course of
negotiation have no contractual force and cannot be acted
upon. He also expressed grave doubt about the authenticity
of the Reference Business plan relied upon by the Claimant.”
54. Mr. Advani has , in my opinion, not been able to satisfactorily
traverse this submission, of Mr. Dayan Krishnan. The arguments of
Mr. Advani have, essentially, been that there was no satisfactory
rebuttal, to the claim of Indeen, based on the Reference Business Plan, or the Project -Profit and Loss Account, by EFS, in its Statement of
Defence. Even if it were to be assumed, arguendo , that EFS did not
specifically traverse the submissions, of Indeen, regarding the computation of the loss, suffered by Indeen as a consequence of exiting, by Daikia , of its operations in India, the submission, of EFS,
that the Reference Business Plan could not be relied upon, as it did not constitute any part of the SCA, which was the “entire agreement”
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 89 of 94 between EFS and Indeen, was required to be addressed by the learned
Arbitral Tribunal. The test, regarding the susceptibility of an arbitral
awards interference, on the ground that issues canvassed before it
were not addressed or decided, as enunciated by the Singapore Court
of Appeal in CRW Jo int Operation6, relying on Redfern and Hunter ,
is whether prejudice has resulted to the party aggrieved by the failure, on the part of the learned Arbitral Tribunal, to decide the issue. The
aspect of “prejudice”, for its part, is to be decided by examining
whether the issue was of such importance that, “had it been decided,
the whole balance of the award would have been altered and its effect would have been different”. On this, in my view, there can be no two
opinions , in the facts of the present case . It is clear that the learned
Arbitral Tribunal has relied, extensively, on the Reference Business
Plan, to arrive at the conclusion that Indeen had suffered loss on
account of DIPL, and to compute the loss so suffered. The learned
Arbitral Tribunal has, for so doing, proceeded on the premise that the
assertions, made in this regard by Indeen, in its Statement of Claim, were not specifically traversed by DIPL, in its Statement of Defence. The impugned Award, even read in its entirety, does not disclose any specific application of mind, by the learned Arbitral Tribunal, to the
effect of Clause 13.2 of the SCA, on the reliability of the Reference
Business Plan, as evidence in favour of Indeen. Nor does the learned
Arbitral Tribunal advert to the submission, of EFS, that the PDA, of
which the Reference Business Plan constituted an annexure, had
expired by efflux of time. In fact, para 65 of the impugned Award
records that “the respondent also did not deny/dispute the Reference Business Plan annexed with the SOC”. This statement is, with
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 90 of 94 respect, not entirely accurate, as EFS had clearly contested the very
reliability of the Reference Business Plan, on the ground that it was not part of the SCA, which constitute the entire agreement between
the parties. By f ailing to advert to this challenge in its findings, the
learned Arbitral Tribunal has proceeded on the premise that the
applicability of the Reference Business Plan was never in challenge. If these issues have been addressed by the learned Arbitral Tribunal,
the very reliability of the Reference Business Plan, as evidenced in
favour of Indeen, may possibly have become questionable.
Irrespective of the outcome of the deliberation on this question, it cannot, in my opinion, be said that, had this issue been addressed by
the learned Arbitral Tribunal, it would have made no difference to the final outcome of the arbitral proceedings, as the profitability of the Project, and the consequent loss which, according to Indeen, or suffered, were based on the Referenc e Business Plan. Tested on the
touchstone of the law laid down by the Court of Appeal in Singapore
in CRW Joint Operation
6, as cited in Ssangyong Engineering and
Construction Co. Ltd3
, a clear case for interference with the
impugned Award, for not having addressed this argument, as
advanced before it by EFS, is made out.
Re. Claim No. 2 – For escalation cost of the new contractor
55. Mr. Dayan Krishnan, on behalf of EFS, has questioned the
correctness of the award of ₹ 4,33,57,100/ –, by the learned Arbitral
Tribunal, towards escalation, on three grounds; firstly, that the learned
Arbitral Tribunal had found the offer is obtained by Indeen, on the
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 91 of 94 basis of which it claimed escalation, not to inspire confidence, and
had awarded escalation on the basis of mere presumption based on
inflation figures of the International Monetary Fund in 2012, which
was impermissible, secondly, that Indeen had failed to establish having taken any steps to mitigate the damage is, pursuant to the alleged repudiation of the contract by DIPL, and thirdly, that Indeen had abandoned the project, and could not, therefore, claim escalation.
56. Mr. Advani contends, per contra , that the learned Arbitral
Tribunal did not conclusively reject the offer as submitted by Indeen, on the basis of which it claimed escalation, and that, in any event, the
learned Arbitral Tribunal was well within its jurisdiction to have
awarded escalation on a r easonable basis, which is all it did. Reliance
was placed, for this purpose, on the judgement of the Supreme Court in McDermott International Inc. v. Burn Standard Co. Ltd
12
12 (2006) 11 SCC 181 .
58. I confess my inability to agree with Mr. Advani. While the
authority of the learned Arbitral Tribunal to have awarded escalation,
in an appropriate case, cannot be gainsaid, as such award has to be
based on some material evidence, led by the party claiming escalation,
supported by the covenants of the agreement between the parties.
Para 105 of the impugned Award commences with the following recital:
“The question is whether escalation should be granted on the
basis of the offers received by the Claimant. The Tribunal is
not inclined to go by the offers obtained by the Claimant.
They do not inspire confidence.”
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 92 of 94
Having thus rejected, in clear, unequivocal and unambiguous terms,
the evidence led by Indeen, to support its claim for escalation, the
learned Arbitral Tribunal went on to hold that Indeen was,
nevertheless, entitled to receive “reasonable escalation in cost”. This
finding, read in isolation, may not be exceptionable. The learned
Arbitral Tribunal, however, proceeded to award escalation on the
basis of the inflation rate emanating from the International Monetary Fund figures, of 10%, in 2012, when offers were received by Indeen.
On this basis, the learned Arbitral Tribunal has held Indeen to be
entitled to escalation of ₹ 4,33,57,100/ –, “as extra cost towards
inflation”.
59. To my mind, such a course of action was n ot open to the
learned Arbitral Tribunal. Even assuming Indeen was entitled to escalation, awarded escalation would have to be based on materials provided by Indeen, or otherwise emanating from the record, and not on any other basis. This would amount to “wandering”, by the
learned Arbitral Tribunal, outside the covenants of the agreement
between the parties, the pleadings on record, and even the case set up
by Indeen itself. It was not open, with greatest respect to the learned Arbitral Tribunal, to so peregrinate. It is nobody’s case that the
material, on the basis of which the learned Arbitral Tribunal awarded
escalation to Indeen, was ever relied upon, by Indeen itself, or cited
by Indeen as a basis to claim escalation. The material cited was found to be lacking in credibility, by the learned Arbitral Tribunal. Mr. Dayan Krishnan submitted that the learned Arbitral Tribunal
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 93 of 94 effectively extended charity to Indeen, which it was not competent to
do. I do not propose to express any opinion regarding whether Indeen was, or was not, entitled to escalation, as the award of escalation, in
my view, deserves to be set aside as being premised on material
outside the contract between the parties, which was never pleaded by Indeen before the learned Sole Arbitra tor. The judgement in
McDermott International
12
, on which Mr. Advani sought to place
reliance, does not advance the case of Indeen to any substantial extent.
All that is stated, in the said decision, is that “ different formulae can
be applied in different circumstances and the question as to whether
damages should be computed by taking recourse to one or the other
formula, having regard to the facts and circumstances of a particular
case, would eminently fall within the domain of the arbitrator”. There
can be no cavil with this proposition. The formula adopted by the
learned Arbitral Tribunal has, however, to emanate from some
material on record. In case the learned Arbitral Tribunal seeks to
decide on public knowledge, to award any particular sum to the
claimant, the proposal to do so has to be put to the respondent, and
both sides have to be heard on that aspect. Else, the learned Arbitral
Tribunal would, additionally, be proceeding in violation of the
principles of natural justice and fair play.
60. In the circumstances, the award of escalation of ₹
4,33,57,100/ –, by the learned Arbitral Tribunal to Indeen, in my
considered opinion, cannot be sustained.
2021:DHC:6O.M.P. (COMM.) 440 /2020 Page 94 of 94 Conclusion
61. As a result of the above discussion, the impugned Award,
passed by the learned Arbitra l Tribunal, cannot be sustained and is,
accordingly, quashed and set aside. It would be open to Indeen to re –
agitate its claims before the learned Arbitral Tribunal. In case the
matter is re -agitated, the learned Arbitral Tribunal would reconsider
the cl aims of Indeen, in accordance with law, keeping in view the
observations made hereinabove.
62. The present petition is, accordingly, allowed, with no orders as
to costs.
63. Pending IAs, if any, do not survive for consideration and
accordingly stand disposed of.
C. HARI SHANKAR, J
JANUARY 04, 2021
2021:DHC:6