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Telangana High Court

Ssj Power Projects And Infrastructure ... vs Fimer India Private Limited on 31 July, 2024

Author: K. Lakshman

Bench: K. Lakshman

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          HONOURABLE SRI JUSTICE K. LAKSHMAN

           ARBITRATION APPLICATON No.14 OF 2024

ORDER:

Heard Sri Mamilla Ashwin Reddy, learned counsel for the Applicant and Sri Prabhakar Peri, learned counsel for the 1st respondent.

2. This Arbitration Application is filed under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (hereinafter 'the Act') for appointment of Arbitrator to adjudicate the disputes arising out of Purchase Order dated 04.06.2018 entered into between the Applicant and the Respondent No. 1.

FACTS:

3. The Applicant is a Private Limited Company. It has been engaged in the business of generation of electrical power through solar power for over a decade. During the course of its business, it has established a 5 Mega-Watt solar power plant in Kadalpur Village, Parigi Mandal, Vikarabad District. To operationalize the solar power plant at the Project Site, the Applicant purchased a new generation solar inverter with the capacity of 1.70 MW from 2nd respondent vide Purchase Order 2 P.O.No.003, dated 04.06.2018 for an amount of Rs.30,.45,000/-. The Inverter was transported and supplied by 2nd respondent to the Project Site on 28.07.2018 and the Inverter was commissioned on 15.10.2018. The solar inverter business of 2nd respondent was divested and was acquired by 1st respondent in the year 2020. Therefore, rights and obligations of 2nd respondent under the subject Purchase Order No.003, dated 04.06.2018 are transferred to 1st respondent. Thus, 2nd respondent is only a formal party.

4. As per terms and conditions of the subject Purchase Order, the warranty period for Inverter shall be sixty (60) months from the date of commissioning of the Inverter at the Project Site or sixty three (63) months from the date of supply of the Inverter to the Project Site, whichever is earlier.

5. It is further contended that within the warranty period, the said Inverter developed a problem and reported an error, which was immediately brought to the notice of the 1st respondent. The said circumstances are explained in detail in the present Application. 3

6. According to the Applicant, service calls and replacement of IGBT and other spares fall within the warranty period and the 1st respondent is under an obligation to restore the Inverter to its working condition without levying any charges on the Applicant.

7. The Applicant has addressed an e-mail dated 01.08.2023 requesting 1st respondent to restore the Inverter to its working condition. It has also addressed several e-mails but there was no response. It is facing huge financial loss on account of the breakdown of the Inverter. The 1st respondent rejected the request of the Applicant.

8. According to the Applicant, 1st respondent has to pay an amount of Rs.33,39,167.70/- towards the loss incurred by the Applicant due to failure of Inverter from the date of its breakdown i.e. from 25.07.2023 till 25.10.2023 (continues till it is resolved and excludes 18% interest on loss of revenue) and Rs. 41 lakhs, the costs of new Inverter of 1.75 MW. Thus in total, 1st respondent has to pay an amount of Rs.74,39,167.70/-. Therefore, according to the Applicant there are disputes between the Applicant and 1st respondent which are arbitral in nature. It has issued legal notice dated 06.11.2023 invoking Arbitration Clause nominating 4 Smt. Jayant Jayasoora, Advocate as its Arbitrator to adjudicate the disputes.

9. 1st respondent vide reply dated 25.11.2023 denied the said averments. Therefore, the Applicant has filed the present application.

10. Whereas, respondent No.1 has filed counter contending that in the said Purchase Order dated 04.06.2018, there are clauses of limitation of liability, consequential losses and arbitration for which both the Applicant and respondents have agreed for the same. The said Clauses are reproduced hereunder:-

LIMITATION OF LIABILITY:

Notwithstanding anything contained in this AGREEMENT, its Appendices or orders to the contrary, with respect to any and all claims arising out of the performance or non-performance of obligations under this AGREEMENT or purchase orders whether arising in contract, tort, warranty, strict liability or otherwise, ABB's liability shall not exceed in the aggregate 100% of this PO order value or payments received against the PO which ever is lower.

CONSEQUENTIAL LOSSES ABB shall in no event be liable for loss of profit, loss of revenues, loss of use, loss of production, costs of capital or costs of connected with interruption of operation, loss of anticipated savings or for any special, indirect or consequential damage or loss of any nature whatsoever. Further, ABB liability does not extend to consequential damages either direct or indirect or expenses for repair or replacements or otherwise paid or uncured 5 without our authority, ABB accept no liability for defects or depreciation caused by damage due to lightening , rain, neglect, misuse or other abnormal conditions directly in circumstances beyond our control. There shall be no liability for either party towards the other party for loss of production, loss of profit, loss of use, loss of contracts or for any other consequential or indirect loss whatsoever.

ARBITRATION All disputes arising in connection with the Agreement/Purchase Order shall be finally settled and governed by the provisions of Arbitration and Conciliation Act, 1996, the arbitration panel shall consist of three arbitrators, one to be appointed by each party and the third arbitrator shall be appointed by the two appointed arbitrators. The third arbitrator shall serve as a chairman.

The award of the arbitral tribunal shall be final and binding on both Parties. The place of arbitration shall be at any metro city in India. The proceedings shall be conducted in English language.

Therefore, both the claims are outside the purview of the said Purchase Order dated 04.06.2018. The claim made by the Applicant is falling under the excepted category. Therefore, there are no disputes between the Applicant and Respondent No.1 much less arbitral in nature. On the said grounds, respondent No.1 sought to dismiss the present application.

11. The aforesaid facts would reveal that there is no dispute with regard to placing of Purchase Order dated 04.06.2018, The Inverter was transported and supplied by 2nd respondent to the Project Site on 28.07.2018 and the same was commissioned on 15.10.2018. Therefore, 6 the earlier date under these two conditions would be 60 months from the date of commissioning the Inverter at the Project Site, which starts on 15.10.2018 and expires on 15.10.2023. The warranty period ends on 15.10.2023. The service call and replacement of IGBT and other spares fall within the warranty period and the respondent No.1 is under an obligation to restore the Inverter to its working condition without levying any charges on the Applicant. Thus, according to the Applicant, there are arbitral disputes between the Applicant and 1st respondent. 1st respondent is due and liable to the aforesaid amount of Rs.74,39,176.70/-. According to the 1st respondent, the claims made by the Applicant is beyond the purview of the agreement and there are no arbitral disputes between the Applicant and respondent No.1.

12. Sri M.Ashwin Reddy, learned counsel for the Applicant placed reliance on the judgment dated 21.05.2024 of Delhi High Court, in Arb.P.No.421 of 2024, and contended that under Section 16 of the Arbitration and Conciliation Act, 1996, the aforesaid defences of 1st respondent have to be considered by the Arbitrator, not by this Court under Section 11(6) of the Act, 1996.

13. Now the question is whether this Court, being the referral Court, can consider the said aspects/defence taken by the 1st respondent in the application filed under Section 11(6) of the Act.

14. It is relevant to note that the scope of High Court under Section 11 of the Act, 1996 is extremely limited. This Court has to see whether prima facie an arbitration agreement exists. The Court cannot go into the disputed questions of facts which are to be considered by the arbitrator which was held by the Apex Court at paragraph No.59 in Duro Felguera S.A. v. Gangavaram Port Ltd. 1 as under:-

"The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co.Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267: (2009) 1 SCC (Civ) 117]. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.

(2017) 9 SCC 729 8

15. It is relevant to note that the Supreme Court in Vidya Drolia v.

Durga Trading Corporation2 laid down the test to exercise power under Section 11 of the Act, 1996 as follows:

244. Before we part, the conclusions reached, with respect to Question 1, are:

244.1. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference.

244.2. Usually, subject-matter arbitrability cannot be decided at the stage of Section 8 or 11 of the Act, unless it is a clear case of deadwood.

244.3. The court, under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding.

244.4. The court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis, as laid down above i.e. "when in doubt, do refer".

244.5. The scope of the court to examine the prima facie validity of an arbitration agreement includes only:

244.5.1. Whether the arbitration agreement was in writing? Or 244.5.2. Whether the arbitration agreement was contained in exchange of letters, telecommunication, etc.?

244.5.3. Whether the core contractual ingredients qua the arbitration agreement were fulfilled?

(2021) 2 SCC 1.

244.5.4. On rare occasions, whether the subject-matter of dispute is arbitrable?

16. Thus, in view of the aforesaid judgments and amendments to the Act in the year 2015, this Court being the referral Court cannot consider the said defence in an application filed under Section 11 of the Act and it is appropriate to refer the dispute to arbitration. The parties are at liberty to take all the defences before the learned arbitrator.

17. Sri Prabhakar Peri, learned counsel appearing for 1st respondent placed reliance on the judgments in M/s EMAAR India Limited v. Tarun Aggarwal Projects LLP 3 and M/s BCC-Monalisha (JV) v. Container Corporation of India Limited 4. The facts therein are altogether different to the facts of the case on hand.

18. In light of the aforesaid discussion and the law laid down by the Apex Court, the present Arbitration Application is allowed. Accordingly, Smt. K.Sailaja, Retired District Judge, is appointed as the Arbitrator to adjudicate the disputes between the parties. 3 Civil Appeal No.6774 of 2022 = (2022) SCC Online SC 1328 4 2023 DHC 6189 (order dated 28.08.2023 in Arb.P.No.933 of 2022 and I.A.No.5219 of 2023.

Consequently, miscellaneous petitions, if any, pending in this Arbitration Application shall stand closed.

_________________________ JUSTICE K. LAKSHMAN Date:31.07.2024 VVR.