TMI Blog2023 (5) TMI 1319X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Commercial Court merely reproduced the findings of the award. The Commercial Court dealing with Section 34 application was not acting as a Court of Appeal. Yet, looking to the long-drawn arguments, the Commercial Court enumerated the issues raised and then returned the findings after examining the record and while rejecting the submissions made on behalf of the State. There had been no such flaw in the judgment and order passed by the Commercial Court which called for interference by the High Court on the parameters and within the periphery of Sections 34/37 of the Act of 1996. The narrow scope of patent illegality cannot be breached by mere use of different expressions which nevertheless refer only to error and not to patent illegality . It is reiterated that what has been stated and underscored by this Court in DELHI AIRPORT METRO EXPRESS PVT. LTD. VERSUS DELHI METRO RAIL CORPORATION LTD. [ 2021 (9) TMI 1479 - SUPREME COURT] that restraint is required to be shown while examining the validity of arbitral award by the Courts, else interference with the award after reassessing the factual aspects would be defeating the object of the Act of 1996. This is apart from the fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 08.03.2021, as passed by the High Court of Judicature at Bombay, Goa Bench in Commercial Appeal No. 12 of 2019, one by Reliance Infrastructure Limited 1 , being the appeal arising out of SLP (Civil) No. 8493 of 2021; and another by the State of Goa 2 , being the appeal arising out of SLP (Civil) No. 16778 of 2021, have been considered together and are taken up for disposal by this common judgment. 3. By way of the impugned judgment and order dated 08.03.2021, while dealing with an appeal Under Section 37 of the Arbitration and Conciliation Act, 1996 3 read with Section 13 of the Commercial Courts, Commercial Division and Commercial Appellate Divisions of High Courts Act, 2015, the High Court has proceeded to upset the order dated 12.09.2019, as passed by the Principal District Sessions Judge, North Goa, Panjim 4 in dismissing the application filed Under Section 34 of the Act; and has partially set aside the award dated 16.02.2018, as made by the Arbitral Tribunal comprising of the Sole Arbitrator, a former Judge of this Court. Relevant factual aspects and background 4. Shorn of unnecessary details, the relevant factual aspects could be usefully summarised as follows: 4.1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to the alternate fuel and charges payable in that regard has formed a major part of contentions in this case. Hence, a little elaboration shall be apposite. 4.3.1. On 26.04.2013, the Government of Goa replied to the claimant's letter dated 21.03.2013, inter alia, in the following terms: In view of your offer under reference, the Government has decided to continue to purchase power @ Rs. 8.58 per unit w.e.f. 01/04/2013 as per your formula proposed in the letter dated 21/03/2013 considering the present rates of fuel and dollar. The same may be noted for records and incorporated in your power bills. The revised fixed rate shall be applicable from 1st April 2013. 4.3.2. On 30.04.2013, the claimant, however, sought a clarification from the Government regarding the formula-based tariff payable for the supply of electricity, inter alia, in the following words: 1. With regard to the price mentioned in our proposal dated 21.03.2013, the tariff of Rs. 8.58/unit is based on the prevailing RLNG price ($17.2/mmbtu) and INR/USD exchange rate (1 $ = Rs 54) and is therefore not fixed. The same shall vary depending upon the fuel price in the market and the INR/USD exchange rate. 4.3.3. It ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dues. The State submitted before JERC that an Arbitrator be appointed in terms of PPA to adjudicate upon the disputes. On 11.12.2015, JERC, based on agreement of both the parties, referred the disputes to the Sole Arbitrator Mr. Justice B.P. Singh (Former Judge of this Court) in pursuance of its powers Under Section 86(1)(f) of the Electricity Act, 2003. The arbitration proceedings under this reference have led to the present appeals. Arbitration proceedings and award 5. After long-drawn proceedings of arbitration with filing of claim, reply and counter claim, rejoinder, sur-rejoinder, amendment of counter claim, filing of various applications and written submissions, the Arbitral Tribunal ultimately passed the award dated 16.02.2018 whereby it directed the State to pay to the claimant a sum of Rs. 278.29 crore (principal amount) together with interest for the period up to 31.10.2017; to pay further interest from 31.10.2017 at the rate of 15% per annum from the date of award until the date of full payment of the amount including interest as on the date of the award until effective payment/realization; and further clarified that in case the non-claimant would pay the entire amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Having examined these alternatives and with reference to its findings, the Tribunal made the award in the following terms: 77. This Tribunal after considering all aspects of the matter has decided four of the issues in favour of the Claimant, and one in favour of the Respondent. The scenario attracted in view of the above findings is Scenario 22. Accordingly, the Claimant will be entitled to a sum of Rs. 119.32 Crores by way of principal amount and a sum of Rs 158.98 Crores by way of interest for the period up to 31.10.2017 totaling Rs. 278.29 Crores. For the period subsequent to 31st October 2017, the Claimant shall be entitled to interest calculated at the same rate as for the period prior to that date, till the date of the award. The Claimant shall also be entitled to payment of interest at the rate of 15% per annum on the above amount from the date of the award till the actual payment of the full amount awarded together with interest. If the full payment of the amount awarded together with interest is made within the period of two months from the date of the award, the Respondent shall not be liable to pay interest for any period subsequent to the date of the award, otherwis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted an expert to ascertain the correctness and veracity of the invoices raised by the claimant from 14.08.1999 and calling upon the expert to submit his report? In the Negative 5 Whether the arbitration proceedings are bad since there is no any order passed on the application filed by GOG on 30.03.2016 calling upon the claimant to produce documents. In the Negative 6 Whether the interest awarded by the Ld. Arbitrator is exorbitant and against the PPA? In the Negative 7 Whether the findings of the Ld. Arbitrator that 3.78 per unit was a fixed amount for supply of backup power by GOG to the claimant is illegal and contrary to the terms of PPA? In the Negative 8 Whether the claimant could not levy variable charges on 4 MW deducted from rated capacity of 19 MW? In the Negative 9 Whether the claim ought to have been rejected on the ground that the claimant did not consider downrating? In the Negative 10 Whether the arbitral award is arbitrary and perverse and passed contrary to principles of natural justice and hence against the public policy? In the Negative The appeal Under Section 37 of the Act 7. In challenge to the aforesaid order dated 12.09.2019 as passed by the Commercial Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Ssangyong Engineering and Construction Co. Ltd. v. NHAI : (2019) 15 SCC 131, wherein principles have been laid down for dealing with challenge to an award Under Section 34 of the Act of 1996 but, thereafter, considered it appropriate to refer to the analysis by a learned Single Judge of the High Court and, after reproducing a few passages from that decision of the learned Single Judge, observed that the submissions would be evaluated with reference to the principles so stated. Be that as it may, thereafter, the High Court dealt with the questions raised by the State as regards the alleged breach of principles of natural justice in point (B) and rejected all such contentions with reference to the record of proceedings as also the pleadings and evidence of the parties. However, the High Court proceeded to disapprove the award in relation to the claims covered by the aforementioned points (C), (D), (E) and (F). Of course, on point (G), in relation to the award of interest for the pre-reference period and the period during which proceedings were pending before Arbitrator, the High Court found no reason to interfere but then, with reference to the decision of this Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by furnishing bank guarantees of a Nationalized Bank. The Respondent was directed to keep alive such bank guarantees until the disposal of this Commercial Appeal and for 15 days thereafter. 198 . Though we have partly allowed this appeal, it is unlikely that the Respondent might have to bring back any portion of the amounts withdrawn by it. The Respondent to, therefore, assess this position and deposit such amount, if any, in this Court within 14 days from today. Only if no amount is to be brought back, the Respondent need not keep the bank guarantees alive beyond 15 days from today. 199 . Further, if despite our order partly allowing this appeal, the Appellant is still due and payable to the Respondent the amounts over and above those which the Respondent has already withdrawn against bank guarantees, then, obviously, the Respondent need not keep the bank guarantees alive for more than 15 days from today. The Appellant to then deposit the balance amount in this Court within four weeks from today. The Respondent will have the liberty to withdraw such amount, once the same is deposited. 200 . The appeal is partly allowed in the aforesaid terms. There shall be no order for costs. Ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompliance with clauses 12.1.4 to 12.1.7 of the PPA but, the said clauses related only to Fuel Supply Contract 8 for Naphtha, and not the alternate fuel. There was a separate Clause i.e., Clause 12.1.9 relating to change in fuel in terms of use of alternate fuel and hence, Clauses 12.1.4 to 12.1.7 were inapplicable. In fact, the Arbitral Tribunal had observed that the Government of Goa had even agreed to the formula on the basis of which the tariff would be computed for alternate fuel. According to learned Senior Counsel, the High Court applied an inapplicable clause, while ignoring the fact that all the relevant documents including the price certificate and dollar rate received from PSUs were forwarded along with invoices. Further, the Government of Goa continued to take power from the claimant without dispute or demur. Even otherwise, no issues were raised contemporaneously by the Government of Goa, and the supposed non-compliance of clauses 12.1.4 to 12.1.7 was raised for the first time in the sur-rejoinder before the Arbitral Tribunal. 9.4. As regards downrating amount of about Rs. 18.53 crore, learned Senior Counsel has recapitulated the contention of the Government of Goa befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment of Goa was justified in claiming credits for 4 MW in computing tariff heat rate for arriving at the fuel cost variable charges from January, 2009 to 30.08.2014. This claim was made by the Government in reference to the letters dated 02.01.2009 and 19.01.2009. It has been contented that the Arbitral Tribunal, after appreciating the evidence including the said letters, concluded that Government of Goa was exempted from payment of only fixed cost with regard to this 4 MW power permitted to be supplied to the other consumers; and the said letter dated 19.01.2009, in no way, affected the committed power supply by the claimant to the Government. Moreover, the Government had maintained its right to revert to take the said 4 MW power in future with all the terms and conditions of PPA remaining the same; and variable charges billed to the Government for supply to them were as per PPA. According to the learned Counsel, the High Court erroneously re-appreciated the letters to substitute its own view with that of the Arbitral Tribunal. 9.6. With respect to the issue related to supply of backup power by the Government to the claimant in case of a scheduled outage (when the plant was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the High Court rightly interfered with the order Under Section 34 of the Act of 1996 considering the fact that the Commercial Court did not adjudicate upon the arbitral award and rather framed separate issues like a regular Appellate Court. 10.2. It has been strenuously argued by the learned Attorney General that in the award in question, the Arbitral Tribunal proceeded to rely upon certain correspondence between the parties but, failed to examine the root question as to whether such correspondence had the effect of variation of terms of contract and as to whether such correspondence changed the fundamentals of contract. The learned Attorney General has re-emphasised that the Arbitral Tribunal has not considered the relevant clauses of the contract and this had been a matter of patent illegality. Two decisions of this Court have been relied on in this regard, namely State of Chhattisgarh and Ors. v. Sal Udyog Pvt. Ltd.: (2022) 2 SCC 275 and Associate Builders v. Delhi Development Authority : (2015) 3 SCC 49. Hence, it has been contended that the award would be liable to be set aside on the ground of patent illegality Under Section 34(2A) of the Act of 1996 because an Arbitral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of variable charges relatable to change in fuel from Naphtha to RLNG; and there had not been any finding by the Arbitral Tribunal that the aforesaid clauses were not applicable when there was change to RNLG from Naphtha. It has further been contended that the claimant was obligated to keep the Government updated about its negotiations with fuel suppliers and provide the correspondence with potential suppliers and other drafts. The letter dated 23.05.2013 stated that all the terms and conditions of the PPA were to remain unaffected and the non-production of FSCs and detailed invoices took the opportunity to object to the same away from the Government. In light of the terms of the PPA, the submission of the claimant that the Government could not have frozen dollar rate and RLNG rate, would be unsustainable. Moreover, it would be wrong to assert that if fuel facilitation charges had not been given to the claimant by the Arbitral Tribunal, the requirement of providing FSCs would be waived off. 10.5. As regards downrating amounting to Rs. 18.53 crore, learned Attorney General has submitted that the Arbitral Tribunal wrongly held that the issue of downrating was resolved between parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment was charged by the claimant for variable charges on units sold to third parties. This has resulted in a dual profit to the claimant, for having been held entitled to recover variable costs for 4 MW electricity from the State despite not supplying electricity to it; and also being compensated for both fixed charges and variable charges for 4 MW electricity by such third parties. It has further been submitted that the Arbitral Tribunal relied on the letter dated 19.01.2009 which permitted the claimant to trade 4 MW of electricity to third parties but, failed to observe that this was in response to a previous communication by the claimant in which, the issue of fixed charges was specifically raised. Thus, the letter dated 19.01.2009 cannot be viewed as acquiescence to payment of variable charges on 4MW power; and the finding of the Arbitral Tribunal in this regard had been perverse. 10.7. Learned Attorney General has also submitted that the Arbitral Tribunal has again ignored the contractual clauses mandating netting-out while making an award in the sum of Rs. 2.36 crore. It has been argued that Clause 15 of the Second Supplementary PPA provided that all the backup energy suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on NHAI v. M. Hakeem: (2021) 9 SCC 1, that such course of action was not permissible as modification of an award would not be possible Under Section 34 of the Act of 1996. Thus, the award of interest of the Tribunal was liable to be set aside as being patently illegal. 10.9. A few other submissions have also been made by the learned Attorney General with reference to the calculation of the awarded amount. It has been contended that as per the PPA, the claimant was required to submit its bills according to the forecast period and thereafter for each subsequent financial year; however, the claimant submitted bills for the tariff period which resulted in inflated bills. Further, the Arbitral Tribunal calculated the amount to be awarded based on the supposed mutually agreed upon table of calculations; however, the set of calculations provided by the claimant was disputed by the State. The Tribunal did not advert to the submission that the principal amount to be paid would be Rs. 60.76 crore as opposed to Rs. 70.58 crore claimed by claimant. According to the learned Attorney General, the claimant has resorted to exorbitant billing de hors the contract and the amount payable could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules; (iii) failing any designation of the law under Clause (a) by the parties, the arbitral tribunal shall apply the Rules of law it considers to be appropriate given all the circumstances surrounding the dispute. (2) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it to do so. 10 [(3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.] **** **** **** 34. Application for setting aside arbitral award .-(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3). (2) An arbitral award may be set aside by the Court only if-- (a) the party making the application 11 [establishes on the basis of the record of the arbitral tribunal that] -- (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived the arbitral award or, if a request had been made Under Section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) On receipt of an application Under Sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. 14 [(5) An application under this Section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. (6) An application under this Section shall be disposed of expeditiously, and in any event, within a period of one year from the da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitral award Under Section 34 and the scope of appeal Under Section 37 of the Act of 1996. 13.1. In MMTC Limited (supra), this Court took note of various decisions including that in the case of Associate Builders (supra) and exposited on the limited scope of interference Under Section 34 and further narrower scope of appeal Under Section 37 of the Act of 1996, particularly when dealing with the concurrent findings (of the Arbitrator and then of the Court). This Court, inter alia, held as under: 11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided Under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the fundamental policy of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 34, as per Section 37, is concerned, it cannot be disputed that such interference Under Section 37 cannot travel beyond the restrictions laid down Under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court Under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court Under Section 34 and by the court in an appeal Under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings. 13.2. In the case of Ssangyong Engineering (supra), this Court has set out the scope of challenge Under Section 34 of the Act of 1996 in further details in the following words: 37. Insofar as domestic awards made in India are concerned, an additional ground is now available Under Sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse. 13.3. The limited scope of challenge Under Section 34 of the Act was once again highlighted by this Court in the case of PSA SICAL Terminals (supra) and this Court particularly explained the relevant tests as under: 43 . It will thus appear to be a more than settled legal position, that in an application Under Section 34, the court is not expected to act as an appellate court and reappreciate the evidence. The scope of interference would be limited to grounds provided Under Section 34 of the Arbitration Act. The interference would be so warranted when the award is in violation of public policy of India , which has been held to mean the fundamental policy of Indian law . A judicial intervention on account of interfering on the merits of the award would not be permissible. However, the principles of natural justice as contained in Section 18 and 34(2)(a)(iii) of the Arbitration Act would continue to be the grounds of challenge of an award. The ground for interference on the basis that the award is in conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court not only re-affirmed the principles aforesaid but also highlighted an area of serious concern while pointing out a disturbing tendency of the Courts in setting aside arbitral awards after dissecting and re-assessing factual aspects. This Court also underscored the pertinent features and scope of the expression patent illegality while reiterating that the Courts do not sit in appeal over the arbitral award. The relevant and significant passages of this judgment could be usefully extracted as under: 26 . A cumulative reading of the UNCITRAL Model Law and Rules, the legislative intent with which the 1996 Act is made, Section 5 and Section 34 of the 1996 Act would make it clear that judicial interference with the arbitral awards is limited to the grounds in Section 34. While deciding applications filed Under Section 34 of the Act, Courts are mandated to strictly act in accordance with and within the confines of Section 34, refraining from appreciation or reappreciation of matters of fact as well as law. (See Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. [Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., : (2020) 2 SCC 455 : (2020) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression patent illegality . 30 . Section 34(2)(b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject-matter of the award or if the award is in conflict with public policy of India, the award is liable to be set aside. Explanation (1), amended by the 2015 Amendment Act, clarified the expression public policy of India and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with public policy of India only when it is indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The award can be set aside Under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to: (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal. None of the aforesaid exceptions shall be applicable to the facts of the case on hand. The High Court has entered into the merits of the claim and has decided the appeal Under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial Court. Thus, the High Court has exercised the jurisdiction not vested in it Under Section 37 of the Arbitration Act. The impugned judgment and order passed by the High Court is hence not sustainable. 13.6. As regards the limited scope of interference Under Sections 34/37 of the Act, we may also usefully refer to the following observations of a 3-Judge Bench of this Court in the case of UHL Power Co. Limited v. State of Himachal Pradesh: (2022) 4 SCC 116: 15 . This Court also accepts as correct, the view expressed by the appellate court that the learned Single Judge committed a gross error in reappreciating the findings returned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as prayed that all transactions and invoices raised by the claimant need to be re-examined through a technical cum financial expert so as to ascertain the correctness of the bills in terms of Section 26 of the Act but, thereafter, the Government itself amended its counter claim, as permitted Under Section 23 of the Act by the Arbitral Tribunal, and dropped this prayer. It was then pleaded by the Government that it had engaged the services of an expert and with his assistance, had reworked the amount which was payable by the claimant to it. The High Court has held that after such deletion of the prayer, it was reasonable for the Arbitral Tribunal to proceed on the basis that the application Under Section 26 of the Act was either rendered infructuous or was abandoned by Government of Goa; and that it had not been able to show any prejudice on account of non-disposal of the application. We are in agreement with the High Court on this score. It is also noticeable that in challenge to the award, the Government of Goa has not agitated the rejection of its counter claim. In fact, there remains no ambiguity as regards the Arbitral Tribunal attending on all the relevant aspects of the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficient opportunity was given by the Arbitral Tribunal since there were at least two meetings/hearings before the learned Arbitrator where the Government of Goa did neither file nor seek leave to file written submissions in response to the claimant's written clarifications/submissions. We are in agreement with these findings too. 14.3. In fact, the submissions of the aforesaid nature, attempting to find fault with the proceedings of arbitration on such hyper-technical but baseless grounds only show an attempt on the part of the State to somehow question the award and seek interference, irrespective of the principles laid down by this Court. 14.4. In regard to the aforesaid procedural aspects of the matter, the High Court has cautiously taken note of the record of proceedings and has proceeded only within the confines of its jurisdiction to reject these contentions. 15. The question, however, is as to whether the High Court remained within those confines while dealing with the other points of challenge pertaining to the items of claim and consideration of the Arbitral Tribunal in that regard. We may examine the point-wise consideration of the High Court with reference to the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its letter of 26th of April 2012 which referred to the cost at the rate of Rs. 8.58 per unit, which was described as the revised fixed rate , the Claimant clarified the position immediately by stating in its letter of 30th of April 2013 to the Respondent that the price mentioned in the proposal dated 21st of March 2013, was not for a fixed cost of power supplied, and that the same shall vary depending upon the fuel price in the market and the exchange rate. They therefore requested the Respondent to confirm that the tariff was formula based and shall vary with changes in the fuel price in the market and dollar variation. Thereafter it appears that the parties were not able to resolve the differences that surfaced, and ultimately the matter was placed before the Cabinet of the Government of Goa on May 22, 2013. After having considered the matter, the Cabinet took a very clear and categoric decision to purchase power from the Claimant at the rate given in the proposal of the Claimant, which would vary, based on the international price of gas and exchange rate fluctuations. The decision was communicated to all offices concerned with a request to report compliance. On the very next da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.1.7 of PPA is concerned, in our view, the claimant is right in its submission that the main issue raised before the Arbitral Tribunal was only as to whether the agreement was to supply power on a fixed rate of fuel price and fixed rate of exchange in terms of US dollar to Indian rupee. 16.4. It might appear that in the latter part of the pleadings, the Government of Goa referred to the aforesaid clauses 12.1.4 to 12.1.7 of PPA but, fact of the matter remains that they were not as such considered by the parties to be forming material propositions of law or facts so as to form the part of the issue before the Arbitral Tribunal. Even on the first principles pertaining to settlement of issues, like those in Order XIV Rule 1 of the Code of Civil Procedure, 1908 18 , the Court, while dealing with regular civil suit, would be ascertaining as to upon what material proposition of fact or law the parties are at variance, and thereupon would frame and record the issues on which the right decision of the case appears to depend. The present case had been that of arbitration and, obviously, the Arbitral Tribunal was not obliged to frame issues on each and every fact pleaded or disputed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticed, the core of variance of the parties had only been as to whether the claimant was to supply energy on a fixed rate of fuel and fixed rate of foreign currency after the parties had agreed to the use of alternate fuel. 16.6. We have only broadly referred to the salient features of the dealings between the parties. In fact, not much dilation and dissection of the record is required because the Arbitral Tribunal has indeed examined all the relevant aspects of the matter in necessary details. 16.7. In any case, all documents which showed the cost at which alternate fuel was procured and the prevailing dollar rate were supported by price certificates forwarded to Government of Goa with each and every invoice, and such certificates had been from Public Sector Undertakings. There is nothing on record to show nor has Government of Goa demonstrated that it had either contemporaneously asked for any documents or had disputed or denied the correctness of such certificates. 16.8. The Arbitral Tribunal has noticed that the decision of the cabinet was produced before it by Government of Goa itself. There is also a finding of fact in the award that the communication dated 23.05.2013 to purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l evidence on the issue of applicability and non-compliance with the contractual provisions in clauses 12.1.4 to 12.1.7. 17.2. The High Court has also proceeded to observe and reiterate that interference was being made not because of the Court disagreeing with any interpretation of the contractual clauses by the Arbitrator but because the Arbitrator failed to look into the relevant contractual provisions. The High Court justified its interference while observing as under: 98 . According to us, all these predicates are attracted when it comes to impugned Award concerning the variable charges. The interference is by no means, merit-based. Interference is because the Arbitrator in the present case has failed to even advert to much less go into the merits of one of the most vital and relevant issues concerning the applicability and non-compliance with the contractual provisions. The interference is not because the interpretation of the contractual clauses by the learned Arbitrator is wrong or because we disagree with such interpretation. The interference is because the learned Arbitrator failed to even look into the contractual provisions to find out if the same were given a go by post ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the contract was terminated in accordance with the change in legislation. The Respondent thereafter levied a claim for refund of a sum of about 1.72 crore, allegedly paid in excess to the State. The dispute ultimately led to arbitration and an arbitral award was made in favour of the Respondent which was not interfered with Under Sections 34 and 37 of the Act. 19.1. Therein, the specific ground of challenge by the Appellant-State had been that the Arbitrator ignored the binding term of contract governing the parties relating to recovery of supervision charges . Such a binding term was brushed aside by the Arbitrator while observing that there was no basis to admit any such indirect expenses . This Court found that the supervision charges were levied by the State and paid by the Respondent without any demur right from the date parties entered into agreement and it was only after termination of the contract that the Respondent raised a dispute towards supervision charges. It had been a classic case of the Arbitrator ignoring and rather overriding the terms of contract, as would appear from the following observations of this Court with reference to the facts of the case: 23 . On a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quashed and set aside being in direct conflict with the terms of the contract and the relevant circular. This Court held thus: 26 . To sum up, existence of Clause 6(b) in the agreement governing the parties, has not been disputed, nor has the application of the Circular dated 27-7-1987 issued by the Government of Madhya Pradesh regarding imposition of 10% supervision charges and adding the same to cost of the Sal seeds, after deducting the actual expenditure been questioned by the Respondent Company. We are, therefore, of the view that failure on the part of the learned sole arbitrator to decide in accordance with the terms of the contract governing the parties, would certainly attract the patent illegality ground , as the said oversight amounts to gross contravention of Section 28(3) of the 1996 Act, that enjoins the Arbitral Tribunal to take into account the terms of the contract while making an award. The said patent illegality is not only apparent on the face of the award, it goes to the very root of the matter and deserves interference. Accordingly, the present appeal is partly allowed and the impugned award, insofar as it has permitted deduction of supervision charges recove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question before the Tribunal had been as to whether the claimant agreed to supply electricity on fixed charges with fixed rate of foreign currency while using the alternate fuel. This question was essentially to be determined with reference to the new contract that came into existence with exchange of communications between the parties. The Arbitrator precisely decided the matter with reference to, and after analysis of, that evidence. It had neither been a case of the Arbitrator not taking into consideration the terms of contract applicable to the issue at hand nor of any such finding which no fair-minded or reasonable person could have possibly rendered ever. Viewed in the light of core dispute presented to the Arbitral Tribunal by the parties, the submissions of the learned Attorney General, that the Arbitral Tribunal has not examined the question as to whether the correspondence in question resulted in change of fundamentals of contract, do not make out a case for interference because novation of the terms of contract as regards fuel had not been a matter of dispute at all. The core question was as to how the new terms were to operate. The Arbitral Tribunal has precisely dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iginal Equipment Manufacturer's (OEM) recommendations towards down rating of generating capacity as envisaged in the definition of Contracted Capacity which was required to ascertain the implementation of the down rating of the generating capacity in accordance with the recommendations of the Original Equipment Manufacturer. 49. According to the Respondent in terms of the PPA, the contracted capacity was defined to be 39.402 KW in the first year of commercial operation and down rated annually as per original equipment manufacturer's recommendation in successive years. However, the Claimant did not take into account the down rating factor in any of the bills which it submitted to the Respondent. After the dispute arose, the Respondent observed that the down rating factor ought to have been applied from the year 2000 onwards, which was the second year of commercial operation, in terms of OEM recommendations. It was therefore that the Respondent sought necessary documents from the Claimant as regards the recommendations of the OEM, but the same were not provided, contending that the said documents were not available with the Claimant. In the circumstances, the Respondent had t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating as alleged. The parties are bound by the contractual provisions. The various supplementary PPAs executed between the parties clearly show that the rated capacity was subsequently reduced to 19.8 MW and the obligation of the Claimant was restricted to assuring supply up to 19.8 MW without any reference to degradation of such capacity. The Respondent is therefore not justified in contending that there was an alleged down rating annually of the rated capacity. 23.2. The Arbitral Tribunal then considered the documentary evidence produced before it, including a certificate issued by OEM dated 08.11.2005 and Minutes of Meeting dated 05.04.2007, where the issue was settled and all bills till that date were reconciled and future bills were raised on the basis that there was no downrating. This is clear from the following findings in the award in question: 52. What is even more significant is the reliance placed upon the certificate issued by the OEM namely BHEL-GE Gas Turbine Services, Private Limited dated November 8, 2005. It is certified by the OEM that subsequent to the commissioning of the Goa plant of the Claimant recommended inspections of Gas Turbine were carried out and Tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was settled between the parties and the parties should not be allowed to reagitate the same. 24. As regards this issue of downrating, again, we find that the High Court has found shortcomings in the discussions of the Arbitral Tribunal as regards the meaning and effect of the certificate dated 08.11.2005 and as to whether the claimant could have made any claim on that basis or not. The High Court even proceeded to analyse the minutes of the meeting. It has clearly been a case of value and worth attached to a particular evidence by Arbitral Tribunal, which was considered not satisfactory by the High Court; and rejection of the contention of the Government by the Arbitral Tribunal was found to be erroneous. However, thereafter, the High Court again observed that it was not a case of re-appreciation of evidence but being a case of no evidence, there had been patent illegality. The High Court observed as under: 124 . The impugned Award has recorded a finding based on the bald statement in the certificate dated 8th November 2005 and there was no degradation of the plant and further, in the absence of degradation of the plant, the concept of downrating will not apply, Again, this is, wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court cannot substitute its own view with that of the Arbitral Tribunal. 25. The questions raised by the learned Attorney General, in relation to the issue concerning downrating, that adverse inference ought to be drawn against the claimant for failure to produce OEM recommendations, are only pertaining to the principles of appreciation of evidence. Of course, in the regular adjudicatory process, the Court may presume existence of certain facts Under Section 114 of the Indian Evidence Act, 1872; and in terms of Illustration (g) thereof, the Court is entitled to draw an inference that the evidence which could be but not produced would, if produced, be unfavourable to the person who withholds it. However, in a given case, while determining the dispute by way of arbitration, whether the Arbitrator draws such adverse inference or not, is essentially a matter of appreciation of evidence; and if not drawing of adverse inference is also permitted to be raised as a ground of challenge Under Section 34, it would open the confines of limited interference in an award; and would carry the propensity of converting the proceedings Under Section 34 and Under Section 37 into the proceedings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the documentary evidence, viz. letters exchanged between the parties dated 02.01.2009 and 19.01.2009 and came to a finding that State was not justified in its submission that the available capacity of the plant stood reduced. 28. In this item too, the High Court has reinterpreted the said communications dated 02.01.2009 and 19.01.2009 by which parties agreed to the manner of billing for supply of 15.8 MW power out of 19.8 MW capacity of the power station reserved for Government of Goa by permitting the balance 4 MW to be sold to third parties; and the High Court arrived at a different finding of fact on the evidence on record. We may usefully reproduce the summation of the findings by the High Court as regards variable charges on 4 MW power as follows: 137 . The circumstance that there was a specific Clause excluding the payment of fixed costs, could not lead to the inference that the Appellant had agreed to bear the variable costs in respect of this 4 MW power, which variable costs were even otherwise not payable by the Appellant to the Respondent in terms of the original PPA or PSA and the supplementary PPAs. If there was any proposal for encumbering the Appellant with any char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Arbitral Tribunal has taken such a view which no fair-minded and reasonable person could have ever taken. 31. The High Court has again justified its interference in this item in the following terms: 148 . According to us, the impugned Award on the aspect of netting out is again vitiated by perversity and patent illegality. The note dated 13/8/2014, as well as the communication dated 18/9/2014 on its plain terms, refers only to the determination of a rate of Rs. 3.78 P. KWh. for applying the contractual provisions concerning netting. This note or this communication was necessitated because for the relevant proximate billing period there were no supplies made by the Respondent to the Appellant and therefore there was no ready rate available based on which the contractual provisions could be worked for netting out. Therefore, the Appellant determined the rate of Rs. 3.78 P. KWh. as the base rate for purposes of netting out. There is nothing either in the noting or in the communication dated 18/9/2014 to even remotely suggest that by determining such base rate, the parties intended to give a complete go-by to the clear and specific contractual provisions for the multiplication of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... caled down the rate of interest to 10% p.a. while observing as under: 175 . Mr. Bhat handed in a statement indicating the interest rates (Benchmark Prime Lending Rates) of the State Bank of India. For the period 2017-18, the rates indicated range around 13 to 14% per annum. This is no doubt one of the factors to be taken into consideration for determining the prevailing economic conditions when the impugned Award was made. Again, reference is also necessary to the principle of proportionality of the amount awarded as an interest to the principal sums awarded. Having cumulative regard to all the factors referred to above, we feel that in the facts and circumstances of the present case, the award of interest at the rate of 15% per annum is excessive and contrary to the principle of proportionality and reasonableness and the same will have to be scaled down to 10% per annum. In Vedanta Ltd. (supra), the Award was dated 9/11/2017 and the Court awarded interest at the rate of 9% per annum for the INR component. The impugned Award, in our case, was made on 16/2/2018. 34. We are of the view that the aforesaid reduction of rate of interest by the High Court is also unjustified. We have not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its order dated 12.09.2019. Instead, we have directly dealt with the consideration of the High Court vis- -vis the award in question. As noticed, the High Court could only be said to have misdirected itself on the major issues concerning merits of the award. However, before concluding, we may observe that it had not been as if the Commercial Court did not examine the material issues arising for determination while dealing with the case in terms of Section 34 of the Act of 1996. 35.1. It is noticed that after taking note of the submissions of parties, the Commercial Court precisely framed the points for determination and then, dealt with every point on the anvil of Section 34 of the Act of 1996. With respect, we do not find the High Court justified in making a comment about framing of points for determination by Commercial Court and then observing that the Commercial Court merely reproduced the findings of the award. The Commercial Court dealing with Section 34 application was not acting as a Court of Appeal. Yet, looking to the long-drawn arguments, the Commercial Court enumerated the issues raised and then returned the findings after examining the record and while rejecting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich nevertheless refer only to error and not to patent illegality . We are impelled to reiterate what has been stated and underscored by this Court in Delhi Airport Metro Express (supra) that restraint is required to be shown while examining the validity of arbitral award by the Courts, else interference with the award after reassessing the factual aspects would be defeating the object of the Act of 1996. This is apart from the fact that such an approach would render several judicial pronouncements of this Court redundant if the arbitral awards are set aside by categorizing them as perverse or patently illegal without appreciating the contours of these expressions. 37. In the passing, we cannot help noticing that in the impugned judgment, the High Court though referred to the principles laid down by this Court in Ssangyong Engineering (supra) but then, reproduced an analysis by a learned Single Judge of the High Court and proceeded to decide the matter with reference to the passages so extracted. With respect, we are of the view that enunciation of this Court ought to have been examined by the Division Bench of the High Court while dealing with the matter at hand, rather than rely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract and shall take into account the usages of the trade applicable to the transaction. . 11 Subs. by Act 33 of 2019, sec 7, for furnishes proof that [w.e.f. 30-8-2019, vide S.O. 3154(E), dated 30th August, 2019]. 12 Subs. by Act 3 of 2016, Section 18(I), for the Explanation (w.r.e.f. 23-10-2015). The Explanation, before substitution, stood as under: Explanation. -Without prejudice to the generality of Sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81. 13 Ins. by Act 3 of 2016, Section 18(II) (w.r.e.f. 23-10-2015). 14 Ins. by Act 3 of 2016, Section 18(III) (w.r.e.f. 23-10-2015). 15 Subs. by Act 33 of 2019, sec 8, for An appeal [w.e.f. 30-8-2019, vide S.O. 3154(E), dated 30th August, 2019]. 16 Subs. by Act 3 of 2016, Section 20, for Clauses (a) and (b) (w.r.e.f. 23-10-2015). Clauses (a) and (b), before substitution stood as under: (a) granting or refusing to grant any measure Under Section 9; (b) setting aside or refusing to set aside an arbitral award Under Section 34. 17 Subs. by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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