Arbitration and Conciliation Act, 1996: s. 37 – Appeal under – Jurisdiction of the appellate court while considering the award passed by the arbitrator – Coal Mining and Delivery Agreement between the appellant and the respondent for supply of coal – Disputes between the parties, as regards the escalation price, fixed costs, amount lying in escrow account and cost of construction of railway siding – Award by arbitrator allowing the claims under the heads of ‘price adjustment’, ‘fixed costs’ and ‘escrow account’, however, rejected under the head ‘construction of railway siding’ – Award confirmed by the commercial court, however, set aside by the High Court – Justification of – On appeal, held: With respect to claim no.1-price adjustment/escalation, interpretation by the arbitrator was both possible as well as plausible – Merely because some other view could have been taken, the High Court was not justified in interfering with the interpretation –Though the High Court observed that the award passed by the arbitrator with respect to claim no.1 was against the public policy, but there was no element of public policy – High Court exceeded in its jurisdiction in interfering with the award passed by the arbitrator as regards claim no. 1 – With respect to claim no.2-fixed costs, the High Court rightly set aside the award passed by the arbitrator – Except the CA’s certificate, no further evidence had been led with respect to actual loss – On the contrary, in the relevant year the quantity of the coal lifted by the respondent was much above the fixed quantity – As regards, claim no.3-escrow account, the object and purpose of opening the escrow account was to see that the appellant company fulfils the contract as per the agreement and till the closure of the coal blocks – It was not open for the appellant to claim the amount lying in the escrow account, else the object of opening the escrow account would be frustrated – Thus, with respect to claim no.3728 VIDYUT UTPADAN NIGAM LTD.
escrow account, the High Court rightly held the reasoning is perverse or so irrational that no reasonable person could have arrived at on the material/evidence on record – Thus, the order passed by the High Court as regards claim no. 1 is set aside and the award passed by the arbitrator with respect to claim no.1 is restored and the order passed by the High Court setting aside the award with respect to claim no.2-fixed costs and claim no.3-escrow account is upheld.
Partly allowing the appeal, the Court
HELD: 1.1 So far as the claim with respect to “price adjustment/escalation” is concerned, the arbitrator held that the date of commencement of the first operating year for the purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011 and therefore zero year for the purpose of price escalation has to be 2011-12. Accordingly, the arbitrator considered the escalated price in F.Y. 2013-14 at Rs.895/- per MT. However, according to the respondent, as the date of commencement was changed from 25.06.2011 to 25.03.2013, the zero year for the purpose of price escalation would be 2013-14. Price escalation is permissible under the contract/agreement itself and there shall be price escalation every year as per the formulae mentioned in the agreement, commencing from the date of commencement. However, it is true that the initial date of commencement, i.e., 25.06.2011 came to be extended to 25.03.2013 by mutual agreement. However, the same was due to force majeure as there was a delay of 21 months in obtaining the forest clearance and environmental clearance. The price was quoted in the year 2007-08, applicable from 2011. However, there was a delay in obtaining the forest clearance and environmental clearance and therefore the date of commencement of supply came to be changed. In between there would be hike in labour charges, transportation charges, etc. Though the date of commencement of supply was extended, there was no corresponding amendment in the relevant clauses of the agreement with respect to price escalation. There was no specific agreement that in the year 2013, the appellant would supply the coal at the same price, without any price escalation. Therefore, considering the overall facts and circumstances of the case and by giving cogent reasons, the arbitrator interpreted the relevant clauses of the contract and specifically held that the date of commencement of the first operating year for the purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011 and accordingly the zero year for the purpose of price escalation would be 201112 and therefore the appellant shall be entitled to the enhanced amount as is applicable in the year 2013-14 (the price escalation). Having considered the reasoning given by the arbitrator, the interpretation by the arbitrator was both possible as well as plausible. Therefore, merely because some other view could have been taken, the High Court is not justified in interfering with the interpretation made by the arbitrator. Therefore, in the facts and circumstances of the case, the High Court has clearly exceeded in its jurisdiction in interfering with the award passed by the arbitrator with respect to claim no.1-price adjustment/escalation. Though the High Court has observed that the award passed by the learned arbitrator with respect to claim no.1 was against the public policy, with respect, there is no element of public policy. It was pure and simple case of interpretation of the relevant clauses of the agreement which does not involve any public policy. Therefore, the impugned judgment and order passed by the High Court for quashing and setting aside the award passed by the arbitrator with respect to claim no.1-price adjustment/escalation cannot be sustained and the same deserves to be quashed and set aside. [Para 11.1] [743-D-H; 744-A-F]
1.2 So far as claim no.2-”fixed costs” and an amount of Rs.78 crores awarded by the arbitrator with respect to compensation of loss is concerned, having gone through the relevant material on record, the High Court has rightly set aside the award passed by the arbitrator with respect to claim no.2. Except the CA’s certificate, no further evidence had been led with respect to actual loss. Considering the material on record, it is on the contrary found that in the relevant year the quantity of the coal lifted by the respondent was much above the fixed quantity. Thus, the award passed by the arbitrator with respect to claim no.2 was contrary to the evidence on record and thus, is rightly set aside by the High Court. [Para 11.2] [743-G-H; 744-B]
1.3 As regards claim no.3-”Escrow Account”, the High Court rightly interfered with the award passed by the arbitrator VIDYUT UTPADAN NIGAM LTD.
with respect to claim no.3. The escrow account was required to be opened as per the guidelines issued by the Ministry of Coal, Government of India for the preparation of mine closure plant. The guidelines required, inter alia, the mining company to open an escrow account with any schedule bank. Accordingly, the respondent opened an escrow account and executed an escrow agreement. From the correspondence between the parties, it appears that even the appellant consented for opening the escrow account. The appellant also agreed that the amount to be deposited in the escrow account will be recovered by the respondent from immediate next payment of the coal bills of the joint venture company-PKCL raised towards dispatches of coal from appellant’s coal blocks. Thus, thereafter it was not open for the appellant to claim the amount lying in the escrow account. If the amount lying in the escrow account is returned to the appellant, the purpose and object of opening the escrow account which was as per the guidelines of the Ministry of Coal would be frustrated. The object and purpose of opening the escrow account was to see that the appellant company fulfils the contract as per the agreement and till the closure of the coal blocks. Therefore, the High Court rightly interfered with the award passed by the arbitrator with respect to claim no.3-escrow account by observing that the reasoning is perverse or so irrational that no reasonable person could have arrived at on the material/evidence on record. [Para 11.3] [744-B-F]
1.4 The impugned judgment and order passed by the High Court insofar as quashing and setting aside the award passed by the sole arbitrator, insofar as claim no. 1-price adjustment/escalation is quashed and set aside and the award passed by the arbitrator with respect to claim no.1 is restored. The impugned judgment and order by the High Court insofar as quashing and setting aside the award passed by the arbitrator with respect to rest of the claim no.2-fixed costs and claim no.3-escrow account is confirmed. [Para 12] [744-G-H; 745-A-B]
Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 ; Steel Authority of India Limited v. Gupta Brother Steel Tubes Limited (2009) 10 SCC 63 : [2009] 14 SCR 253 ; Ssangyong Engineering &
Construction Co. Limited v. National Highways
Authority of India 2019 SCC Online SC 677 ; ONGC v. Saw Pipes Limited (2003) 5 SCC 705 : [2003] 3 SCR
691 ; Hindustan Zinc Limited v. Friends Coal
Carbonisation (2006) 4 SCC 445 ; McDermott
International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181 : [2006] 2 Suppl. SCR 409 ; Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran (2012) 5 SCC 306 : [2012] 4 SCR 1 ; National Highways
Authority of India v. ITD Cementation India Limited (2015) 14 SCC 21 : [2015] 6 SCR 107 ; Steel Authority of India Limited v. Gupta Brother Steel Tubes Limited (2009) 10 SCC 63 : [2009] 14 SCR 253 - referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.