OPG Power Generation Private Limited vs Enexio Power Cooling Solutions India Private Limited & Anr.

Arbitration and Conciliation Act, 1996 – Holding company of appellant, if could be subjected to arbitral proceedings and made jointly and severally liable along with appellant for the dues of claimant:

Held: Holding company bound by the arbitration agreement and thus, jointly and severally liable along with the appellant for the dues payable to the claimant – Arbitral tribunal found that the holding company of the appellant had issued the Purchase Orders and had actively participated in the formation of the contract even though the ACC unit was of the appellant; initial 10% of the purchase price was provided by the holding company; subsequent Purchase Orders issued by the appellant were on similar terms and were issued by way of affirmation to obviate technical | issues – Said circumstances had a material bearing for invocation of Group of Companies doctrine to bind holding company with the arbitration agreement and fasten it with liability, jointly and severally with the appellant, in respect of the Purchase Orders relating to ACC Unit – Thus, no reason to interfere with the findings of the arbitral tribunal more so when it is based on a possible view of the matter. [Para 81]

Limitation Act, 1963 – Art. 14, 18, 55 of the Schedule – Claim in respect of declaration qua invalidity of debit notes; outstanding principal amount; and interest – Applicability of Art. 14, 18,

55 to the claim – Limitation for the claim:

Held: On facts, there is an indivisible claim in respect of the outstanding principal amount for the goods supplied and the work done – Moreover, the payments under the supply purchase order were to be on pro rata basis, and full payment for the supplies was dependent on supporting documents, including certificates, to be provided by the purchaser, which were not provided – Thus, when full payments under the supply/erection purchase orders were dependent on certificates relating to completion/commissioning/guaranteed performance etc., the claimant waited till successful completion/commissioning/guaranteed performance of the project to file a composite claim for the balance amount payable under both the purchase orders – Thus, Art. 14 not applicable to the claim as framed – As regards applicability of Art. 18, since the payments under the contract were to be made on pro rata basis, dependent on work done and certificates issued, which were not issued, hence, the claimant was entitled to make a composite claim for the goods supplied and the work done after the project was successfully complete-when the Unit was commissioned followed by guaranteed performance because it is only then, when the outstanding amount, as per the Bills/Invoices raised, became due and payable to the claimant in terms of the contract, thus, Art. 18 would also not apply – Art. 55 was applicable since the claim was for compensation which includes a specified amount payable under a contract, in respect of the goods supplied and the work done under a contract – Claim was based on a breach of the contractual obligation as, according to the findings returned by the tribunal, the appellants failed to fulfil their obligations of making payment of the outstanding principal amount payable under the contract despite raising of bills/invoices by the claimant – Thus, the claim for the outstanding principal amount not barred by limitation. [Paras 105-107]

Limitation Act, 1963 – Starting point of limitation for the claim – Date from which the limitation period is to be counted: Held: Under Art. 55, the limitation period begins to run when the contract is broken or where there are successive breaches, when the breach in respect of which the suit is instituted occurs, or where the breach is continuing, when it ceases – Claim is for the outstanding principal amount due to the claimant on discharge of his obligations under the contract – Thus, the cause of action for the claim is appellants’ failure to make payment of the outstanding principal amount to the claimant despite discharge of contractual obligations by it – Nothing brought to the notice that there was any fixed date, or period of credit, for payment of the balance amount – Starting point of limitation should be the date when the claimant had fulfilled all its obligations under the contract and was entitled for release of the outstanding amount payable under the contract – Tribunal concluded that commissioning took place in the month of May 2015; technical issues were resolved by 21 September 2015; and performance guarantee period expired on 19 March 2016 – Final payment of the principal outstanding amount was dependent on meeting the requirement of performance guarantee, the cause of action for the claim, as made, matured on expiry of that stipulated period of 180 days within which, despite request, the appellants failed to undertake the performance guarantee test – Thus, even though there might be several bills/invoices raised/issued by the claimant during execution of the contract, the claim of the claimant for the outstanding principal amount matured on expiry of 180 days from the date of the notice given by the claimant to the appellants to undertake the performance guarantee test – Thus, limitation for the claim started to run from

19 March 2016. [Paras 109-113]

Limitation Act, 1963 – s. 18 – Limitation extended by acknowledgement – By virtue of acknowledgment, if any, the claimant, if entitled to extension of the period of limitation: Held: s. 18 deals with the effect of acknowledgement in writing – Sub-section (1) thereof provides that where, before the expiration of the prescribed period for a suit or application in respect of any right, an acknowledgement of liability in respect of such right has been made in writing signed by the party against whom such right is claimed, a fresh period of limitation to be computed from the time when the acknowledgment was so signed – Explanation to s. 18 provides that an acknowledgment may be sufficient though it omits to specify the exact nature of the right or avers that the time for payment has not yet come or is accompanied by a refusal to pay, or is coupled with a claim to set off, or is addressed to a person other than a person entitled to the right – On facts, the limitation period started to run from 19 March 2016 – Within three years therefrom, in the minutes of meeting dated 19 April 2018 there was a clear acknowledgement that the amount claimed by the claimant is the balance amount payable, though subject to debit, by way of set off, against various claims made by the appellant upon the claimant – Such an acknowledgment was sufficient to extend the limitation period as it admitted the existing liability of the appellants qua the balance amount payable to the claimant under the contract – Benefit of such an acknowledgement would not be lost merely because a set off is claimed – Thus, minutes of meeting dated 19 April 2018, though claims a set off, is a valid acknowledgement of the existing liability within the ambit of s. 18 and it extends the period of limitation for a period of 3 years from the date it was made – Thus, the claim made on 2 May 2019, within the period of limitation. [Paras 116, 119] Arbitration and Conciliation Act, 1996 – s. 23 (2A) – Counter claim – Nature of – Counterclaim in respect of cost of repair/replacement of gear box and fan modules, if barred by time: Held: Counterclaim is a claim made by a defendant in a suit against the plaintiff – It is a claim, independent of and separable from the plaintiff’s claim, which can be enforced by a cross action – Counterclaim preferred by the defendant in a suit is a cross suit and even if the suit is dismissed, counterclaim shall remain alive for adjudication – Purpose of the scheme relating to counterclaim is to avoid multiplicity of proceedings – s. 23 (2A) gives respondent to a claim a right to submit a counterclaim or plead a set off, which shall be adjudicated upon by the arbitral tribunal, if such counterclaim or set off falls within the scope of the arbitration agreement – Counterclaim is like a cross suit, or a separate suit, and the limitation of a counterclaim is to be counted from the date of accrual of the cause of action which it seeks to espouse – As a logical corollary thereof, it is quite possible that even though a suit or a claim is within the period of limitation, the counterclaim may well be barred by limitation, if the cause of action espoused therein accrued beyond the prescribed period of limitation – On facts, the counterclaim in respect of cost of repair/replacement of gear box and fan modules, barred by time – Tribunal took 21 September 2015 as the start point of limitation for the counterclaim on the premise that it would be the date when the Takeover Certificate is deemed to have been issued, the supplier had fulfilled its obligations – On basis thereof, the tribunal found counterclaims as regards cost of repair/replacement of gear boxes and of fan modules barred by time as the counterclaim was filed on 15 July 2019 i.e., more than three years later, and there existed no acknowledgement in respect thereof – However, for other issue, 19 March 2016 is found as the start point of limitation for the claim because that is the date when

180 days period of guaranteed performance, part of supplier’s liability, expired – Whether the limitation period is counted from

21 September 2015 or 19 March 2016, the counterclaim filed on

15 July 2019 was beyond the prescribed period of three years inasmuch as its cause of action could not have arisen after 19 March 2016. [Paras 120, 122, 124, 125, 128, 129] Limitation Act, 1963 – s. 18 – Effect of acknowledgment in writing – Extension of the period of limitation – Minutes of meeting, if extended the limitation of counterclaims: Held: To extend the period of limitation with the aid of s. 18, the acknowledgment must involve an admission of a subsisting jural relationship between the parties and a conscious affirmation of an intention of continuing such relationship regarding an existing liability – Such intention can be gathered from the nature of the admission – Admission need not be express, or regarding a precise amount, but must be made in circumstances and in words from which the court can reasonably infer that the person making the admission intended to refer to a subsisting liability as on the date of the statement – However, where an acknowledgement is in respect of a specified sum of money or a specific right only, and not in general terms, it would extend the period of limitation only in respect thereof, and not of other claims which, though may have arisen out of same jural relationship, are not specified therein – On facts, minutes of meeting did not extend the limitation of counterclaims – Minutes of meeting made no reference to the items referable to counterclaims-cost of repair/replacement of Gear Box and Fan Modules – Also no acknowledgment in general terms in regard to liabilities subsisting under the contract – Said minutes could not be treated as acknowledgment for the purpose of extending limitation of the counterclaims not specified therein – Thus, when the counterclaims were otherwise barred by limitation on the date of filing of counterclaim, the tribunal justified in rejecting them as barred by limitation. [Paras 137, 138]

Limitation Act, 1963 – Rejection of claimant’s prayer to declare debit notes invalid, if had adversely affected the claim for the outstanding principal amount in respect of the goods supplied/work done under the contract :

Held: Rejection of prayer to declare debit notes invalid did not affect respondent’s claim for the outstanding principal amount – Relief for declaratory relief was rightly held barred by limitation by the tribunal – Rejection of declaratory relief did not impact relief for compensation, since relief for compensation was not a consequential relief, dependent on debit notes being declared invalid because issuance of debit notes was a unilateral act of the employer which on its own did not extinguish the right of the contractor – No doubt, where the relief sought is consequential to the declaration, and declaratory relief is found barred by time, the prayer for consequential relief will also fail – But where declaration is just an optional relief-on which the main relief is not dependent, rejection of it as barred by limitation would not extinguish the claim in respect of which substantive relief is sought – In such circumstances, it was open for the contractor to sue for its dues without seeking a declaration qua the debit notes – Thus, rejection of the declaratory relief as barred by limitation, did not have a material bearing on respondent’s claim against the appellants’ for the outstanding principal amount payable under the contract – Amount, as shown debited in the debit notes, was not to be automatically adjusted against the principal outstanding amount payable to respondent – While deciding the claim of respondent, the tribunal was well within its remit to adjudicate upon the issue whether such amount should be adjusted or not against the outstanding principal amount payable to respondent – No perversity in the award on this count. [Paras 139, 141]

Arbitration and Conciliation Act, 1996 – ss. 34, 37 – Arbitral award – Setting aside of – Plea that the arbitral tribunal adopted different yardstick for adjudicating the claim than what was adopted for the counterclaim; and the reasoning is completely flawed and perverse :

Held: Distinction would have to be drawn between an arbitral award where reasons are either lacking/unintelligible or perverse and an arbitral award where reasons are there but appear inadequate or insufficient – In a case where reasons appear insufficient or inadequate, if, on a careful reading of the entire award, coupled with documents recited/relied therein, the underlying reason, factual or legal, that forms the basis of the award, is discernible/intelligible, and the same exhibits no perversity, the court need not set aside the award while exercising powers u/s. 34 or s. 37, rather it may explain the existence of that underlying reason while dealing with a challenge laid to the award – In doing so, the court does not supplant the reasons of the arbitral tribunal but only explains it for a better and clearer understanding of the award – On facts, the arbitral tribunal did not adopt different yardstick for adjudicating the claim than what was adopted for the counterclaim and the reasoning of the arbitral tribunal is not flawed or perverse – Though reasons recorded in the award at first blush appear insufficient, or a bit confusing, but, when those reasons are examined in the context of the documents placed and the arguments advanced, the underlying reasons, which form basis of the conclusion, are not only intelligible but sound – Mistake, if any, committed by the arbitral tribunal in using the words ‘ongoing negotiations’ in place of acknowledgement is trivial does not go to the root of the matter as to have a material bearing on the conclusion – Thus, for this mistake alone, the award is not liable to be set aside – Furthermore, it cannot be said that the arbitral tribunal was obliged to accept the admission contained in the minutes of meeting qua liquidated damages and customs duties, because it relied on it for extending the limitation – Tribunal was well within its jurisdiction in drawing a conclusion that the claimant was not liable in respect of those items which formed part of the counterclaim, based on consideration of the entire evidence, at variance with the recitals in the acknowledgement – Such conclusion is a plausible view and cannot be termed perverse – Single Judge of the High Court erred in law while interfering with the arbitral award – Furthermore, as regards the plea that the appellate court-Division Bench of the High Court exceeded its jurisdiction while providing its own reasons to support the conclusion in the award, the appellate court took pains, and rightly so, to understand and explain the underlying reason on which the claim of the respondent was found within limitation – Appellate court was well within its jurisdiction to explain the underlying legal principle which the arbitral tribunal had applied; and in doing so, it did not supplant the reasons provided in the award – Impugned order of the Division Bench does not suffer from any legal infirmity. [Paras 144-149]

Arbitration and Conciliation Act, 1996 – s. 34(2)(b)(ii) – Arbitral Award – Challenge to – Award may be set aside when in conflict with the public policy of India – Scope of public policy: Held: For an award to be against public policy of India a mere infraction of the municipal laws of India not enough – There must be, inter alia, infraction of fundamental policy of Indian law including a law meant to serve public interest or public good. [Para 36] Arbitration and Conciliation Act, 1996 – ss. 34 and 48 (as amended by the Amendment, 2015) – Amendment, 2015 adding Explanations to s. 34(2)(b)(ii) and s. 48(2)(b), in place of the earlier Explanation, wherein Explanation 1 clause (ii) to s. 34(2)(b)(ii) and s. 48(2)(b), specifies that an arbitral award is in conflict with the public policy of India, only if, it is in contravention with the fundamental policy of Indian law – Expression “in contravention with the fundamental policy of Indian law” – Meaning of:

Held: After the ‘2015 amendments’ in s. 34 (2)(b)(ii) and s. 48(2) (b), the phrase “in conflict with the public policy of India” must be accorded a restricted meaning in terms of Explanation – Expression “in contravention with the fundamental policy of Indian law” by use of the word ‘fundamental’ before the phrase ‘policy of Indian law’ makes the expression narrower in its application than the phrase “in contravention with the policy of Indian law”, which means mere contravention of law is not enough to make an award vulnerable – To bring the contravention within the fold of fundamental policy of Indian law, the award must contravene all or any of such fundamental principles that provide a basis for administration of justice and enforcement of law in this country – Violation of the principles of natural justice; disregarding orders of superior courts in India or the binding effect of the judgment of a superior court; and violating law of India linked to public good or public interest, are considered contravention of the fundamental policy of Indian law – However, while assessing whether there has been a contravention of the fundamental policy of Indian law, the extent of judicial scrutiny must not exceed the limit as set out in Explanation 2 to s. 34(2)(b)(ii). [Para 52]

Arbitration and Conciliation Act, 1996 – ss. 34 and 48 (as amended by the Amendment, 2015) – Explanation 1 clause (iii) to s. 34(2)(b)(ii) and s. 48(2)(b) inserted by 2015 Amendment, that an award is in conflict with the public policy of India, inter alia, if it conflicts with the ‘most basic notions of morality or justice’ – Most basic notions of ‘morality’ – Explanation: Held: It would cover such agreements as are not illegal but would not be enforced given the prevailing mores of the day – Interference on this ground would be only if something shocks the court’s conscience. [Para 59]

Arbitration and Conciliation Act, 1996 – ss. 34 and 48 (as amended by the Amendment, 2015) – Explanation 1 clause (iii) to s. 34(2)(b)(ii) and s. 48(2)(b) inserted by 2015 Amendment, that an award is in conflict with the public policy of India, inter alia, if it conflicts with the ‘most basic notions of morality or justice’ – Most basic notions of ‘justice’ – Explanation: Held: Term ‘legal justice’ is not used in Explanation 1, thus, simple conformity or non-conformity with the law is not the test to determine whether an award is in conflict with the public policy of India in terms of Explanation 1 – Test is that it must conflict with the most basic notions of justice – For lack of any objective criteria, it is difficult to enumerate the ‘most basic notions of justice’ – More so, justice to one may be injustice to another – As regards justice being done, it is about rendering, in accord with law, what is right and equitable to one who has suffered a wrong – Dispensation of justice in its quality may vary, dependent on person who dispenses it – Thus, the placement of words “most basic notions” before “of justice” in Explanation 1 has its significance – Object of inserting Explanations 1 and 2 in place of earlier explanation to s. 34(2)(b)(ii) was to limit the scope of interference with an arbitral award, thus the amendment consciously qualified the term ‘justice’ with ‘most basic notions’ of it – Giving a broad dimension to this category would be deviating from the legislative intent – Thus, considering that the concept of justice is open-textured, and notions of justice could evolve with changing needs of the society, it would not be prudent to cull out “the most basic notions of justice” – They ought to be such elementary principles of justice that their violation could be figured out by a prudent member of the public who may, or may not, be judicially trained, which means, that their violation would shock the conscience of a legally trained mind – This ground would be available to set aside an award, if the award conflicts with such elementary/fundamental principles of justice that it shocks the conscience of the Court. [Paras 55, 58]

Arbitration and Conciliation Act, 1996 – s. 34 (2-A) (as inserted by the Amendment, 2015) –Sub-section (2-A) of s. 34 providing that the Court may also set aside an arbitral award if it is vitiated by patent illegality appearing on the face of the award – Patent illegality appearing on the face of the award – Meaning of: Held: Proviso to sub-section (2-A) states that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence – Thus, an award could be set aside if it is patently illegal – However, illegality must go to the root of the matter and if the illegality is of trivial nature, it cannot be held that award is against public policy. [Para 60] Arbitration and Conciliation Act, 1996 – s. 34 –Arbitral Award – Scope of interference – Perversity as a ground for setting aside an arbitral award:

Held: Interference with an arbitral award is only on limited grounds as set out in s. 34 – Possible view by the arbitrator on facts is to be respected as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon – Arbitral decision must not be perverse or so irrational that no reasonable person would have arrived at the same – If an award is perverse, it would be against the public policy of India – It is only when an arbitral award could be categorized as perverse, that on an error of fact an arbitral award may be set aside – Mere erroneous application of the law or wrong appreciation of evidence by itself is not a ground to set aside an award as is clear from the provisions of sub-section (2-A) of s. 34. [Paras 63, 68]

Arbitration and Conciliation Act, 1996 – s. 31 – Forms and contents of arbitral award – Scope of interference – Ground of insufficient, or improper/erroneous or lack of reasons: Held: Arbitral award on the ground of improper or inadequate reasons, or lack of reasons, can be placed in three categories,

(1) where no reasons are recorded, or the reasons recorded are unintelligible; (2) where reasons are improper, that is, they reveal a flaw in the decision-making process; and (3) where reasons appear inadequate – Awards falling in category (1) are vulnerable as they would be in conflict with the provisions of s. 31(3), thus, liable to be set aside u/s. 34, unless the parties have agreed that no reasons are to be given, or the award is an arbitral award on agreed terms u/s. 30 – Awards falling in category (2) are amenable to a challenge on ground of impropriety or perversity, strictly in accordance with the grounds set out in s. 34 – In a challenge to award falling in category (3), before taking a decision the Court must take into consideration the nature of the issues arising between the parties in the arbitral proceedings and the degree of reasoning required to address them – If reasons are intelligible and adequate on a fair-reading of the award and, in appropriate cases, implicit in the documents referred to therein, the award is not to be set aside for inadequacy of reasons – However, if gaps are such that they render the reasoning in support of the award unintelligible, or lacking, the Court exercising power u/s. 34 may set aside the award. [Paras 71.3, 71.6]

Arbitration and Conciliation Act, 1996 – Arbitral award – Scope of interference with the interpretation/construction of a contract accorded in the award :

Held: Arbitral tribunal must decide in accordance with the terms of the contract – In a case where an arbitral tribunal passes an award against the terms of the contract, the award would be patently illegal – However, an arbitral tribunal has jurisdiction to interpret a contract having regard to terms and conditions of the contract, conduct of the parties including correspondences exchanged, circumstances of the case and pleadings of the parties – If the conclusion of the arbitrator is based on a possible view of the matter, the Court should not interfere – But where, on a full reading of the contract, the view of the arbitral tribunal on the terms of a contract is not a possible view, the award would be considered perverse and as such amenable to interference. [Para 72] Arbitration – Arbitration agreement/contract – Unexpressed term, if can be read into a contract as an implied condition: Held : Ordinarily, terms of the contract are to be understood in the way the parties wanted and intended them to be – In agreements of arbitration, where party autonomy is the grund norm, how the parties worked out the agreement, is one of the indicators to decipher the intention, apart from the plain or grammatical meaning of the expressions used – However, reading an unexpressed term in an agreement would be justified on the basis that such a term was always and obviously intended by the parties thereto – Unexpressed term can be implied if, and only if, the court finds that the parties must have intended that term to form part of their contract – It is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them – Rather, it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, although tacit, forms part of the contract – But before an implied condition, not expressly found in the contract, is read into a contract, by invoking the business efficacy doctrine, it must be reasonable and equitable; it must be necessary to give business efficacy to the contract, that is, a term will not be implied if the contract is effective without it; it must be obvious, it must be capable of clear expression; and it must not contradict any terms of the contract. [Paras 73, 75] Limitation Act, 1963 – Arts. 14, 18 and 55 of the Schedule – Applicability to the claim, when:

Held: Art. 14 applies where the suit/ claim is for the price of goods sold and delivered; and no fixed period of credit is agreed upon whereas Art.18 applies where the suit/claim is for the price of work done by the plaintiff/claimant for the defendant at his request; and no time has been fixed for payment – Thus, where a suit is for goods supplied and work done by the plaintiff (a contractor) and the price of materials and the price of work is separately mentioned, and the time for payment is not fixed by the contract, Art. 14 will apply to the former claim, and Art. 18 to the latter – But where a claim is made for a specific sum of money as one indivisible claim on the contract, without mentioning any specific sum as being the price of goods or price of the work done, neither Art. 14 nor Art. 18 would apply, but only Art. 55, which provides for all actions based on a contract, not otherwise provided for, would apply – Art. 55 is a residuary Article in respect of all actions based on a contract not otherwise specially provided for – For the applicability of Art. 55, the suit should be based on a contract, there must be breach of the contract, the suit should be for compensation and the suit should not be covered by any other Article specially providing for it – Phrase ‘compensation for breach of contract’, as occurring in Art. 55 would comprehend also a claim for money due under a contract – Thus, even a suit for recovery of a specified amount, based on a contract, is a suit for compensation, and if the suit is a consequence of defendant breaching the contract or not fulfilling its obligation(s) thereunder, the limitation for institution of such a suit would be covered by Art. 55, provided the suit is not covered by any other Art. specially providing for it. [Paras 91, 92, 95, 98] Words and phrases – Expression ‘public policy’ – Meaning and scope of. [Paras 30-40]

Words and phrases – Term ‘justice’ – Meaning of: Held: Justice is the virtue by which the society/court/tribunal gives a man his due, opposed to injury or wrong – Justice is an act of rendering what is right and equitable towards one who has suffered a wrong – Thus, while tempering justice with mercy, the court must be very conscious, that it has to do justice in exact conformity with some obligatory law, for the reason that human actions are found to be just or unjust on the basis of whether the same are in conformity with, or in opposition to, the law – Thus, in ‘judicial sense’, justice is nothing more nor less than exact conformity to some obligatory law; and all human actions are either just or unjust as they are in conformity with, or in opposition to, the law. [Para 54]