Delhi High Court
Bharat Sanchar Nigam Ltd vs M/S Aksh Optifibre Limited on 4 March, 2020
Equivalent citations: AIRONLINE 2020 DEL 572
Author: Jyoti Singh
Bench: Jyoti Singh
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 25.11.2019
Pronounced on: 04.03.2020
+ O.M.P. (COMM) 131/2017 & IA Nos.3379/2017 & 2642/2019
BHARAT SANCHAR NIGAM LTD ..... Petitioner
Through: Mr. Dinesh Agnani, Sr. Advocate
with Mr.L.B. Rai, Advocate.
versus
M/S AKSH OPTIFIBRE LIMITED ..... Respondent
Through: Mr.Amit Bansal, Mr. Vikas Goel
and Mr.Kunal Dutta, Advocates.
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
JYOTI SINGH, J.
1. Present petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act') seeking to set aside the Award dated 27.10.2016 passed by the Sole Arbitrator.
2. The brief facts necessary to adjudicate the present petition are that vide notice dated 19.09.2007, petitioner herein invited requests for Expression of Interest (EOI) from interested parties for provision of content to BSNL's Broadband customers through a Content Delivery Network (CDN). As per the case set up by the petitioner, the intention of BSNL was to provide internet-based services only to its own customers at affordable prices. It was a business model envisaged, wherein BSNL had intended to join hands with a private party for commercial gains. The EOI was not for sale of Bandwidth/MPLS by BSNL to the successful O.M.P. (COMM) 131/2017 Page 1 of 26 bidder, but was to be used for provisioning of internet-based services to BSNL's customers only. Bidder was not required to give any financial offer or revenue share percentage, which had already been determined by BSNL and even the tariff to be charged from the customer was to be fixed by BSNL.
3. Respondent emerged as a successful bidder and accordingly Franchisee Agreement (hereinafter referred to as FA) was entered into on 02.06.2008. The Agreement was for a period of ten years and for providing services in 20 cities listed in Annexure-III. Respondent was to make available the CDN infrastructure and operate and maintain the same. Petitioner was to provide Broadband access and connectivity of the CDN equipment to its customers. The revenue generated was to be shared between the parties in the manner specified in clause 4.4 of Schedule IV to the FA. Respondent was to provide Performance Bank Guarantees under the FA.
4. As per the petitioner herein, the services under the FA started in the city of Jaipur in August 2008 but the respondent was using only intra-city Bandwidth thus no charges were payable. As per the FA, no charges were payable by the respondent for intracity usage, but for intercity Bandwidth usage respondent had to pay the charges which were to be the 'Competitive Port Tariff' for MPLS services from time to time.
5. It is an admitted case between the parties that Chandigarh was the first city where services were launched on 06.02.2009, using inter-city bandwidth.
6. According to the petitioner, it first raised its demand against the Respondent towards bandwidth charges vide letter dated 30.09.2008, O.M.P. (COMM) 131/2017 Page 2 of 26 claiming Rs.1.12 Crores annually, for 20 locations. This was only a tentative demand. Another provisional demand was raised vide letter dated 11.12.2008 for Rs.40.16 Crores per annum for 20 cities. Petitioner thereafter sent a letter dated 20.01.2009 requiring the respondent to make the payment and it was stated that failure to do so would result in disconnection of the connectivity.
7. Petitioner further avers that the respondent vide its letter dated 11.02.2009 proposed for collection of one-time fee of Rs.30 Lakhs or annual charges of Rs.6 Lakhs for all locations. Vide another letter dated 11.02.2009, respondent reiterated its request and also suggested an alternative criteria being, bandwidth charges to be paid at Rs.5/- per commercial connection, per month. A number of letters exchanged between the parties thereafter did not result in any final resolution on the charges payable by the respondent and finally the petitioner vide letter dated 18.05.2011 called upon the respondent to explain why the FA should not be terminated, in view of Clause 5.3.2 thereof.
8. Significantly, respondent vide letters dated 31.08.2012 and 26.09.2012 wrote to the petitioner placing on record the huge amount invested by it in the IPTV business as well as the total revenue generated being Rs.6.4 Lakhs, per city, against which the demand of the petitioner was for Rs.19 Lakhs, per city, per annum. Respondent claimed that on paying the huge charges so demanded, there would be no business sense in the respondent continuing to run the services.
9. Finally, the petitioner issued a demand note thereby demanding a sum of Rs.178,413,410/- towards bandwidth charges for IPTV for all 20 cities. The respondent thereafter approached this Court in a petition O.M.P. (COMM) 131/2017 Page 3 of 26 under Section 9 of the Act and vide order dated 02.11.2012 Court directed the petitioner not to take coercive steps against the respondent and finally the matter was referred to Arbitration.
10. The respondent herein made the following claims before the Arbitrator:-
"(i) Declaring that the demand of Rs. 17,84,13,410 mentioned in Respondent‟s letters dated 31.8.2012, 22.10.2012, Demand Note dated 26.10.2012 and letter dated 29.10.2012 or any other amount towards MPLS/bandwidth charges for IPTV connectivity from the Claimant, is wrong, excessive and bad in law;
(ii) Declare that the provisions of the FA relating to payment of MPLS/bandwidth charges for IPTV connectivity, are void and Claimant is not liable to pay any MPLS/bandwidth charges to the Respondent under the FA Or in the alternative, and without prejudice to (ii) above, and in the event this Hon'ble Tribunal concludes Bandwidth charges are payable under the FA, publish an award determining such bandwidth charges as are reasonable considering the proposal made by Claimant to the Respondent, from time to time.
(iii) Declaring that the Bank Guarantees furnished by the Claimant to the Respondent, details whereof are given Annexure C-3 Colly hereof, can be invoked only for reasons stated in clause 4.7.3 of the FA and for no other reason; and
(iv) Award cost of the arbitration proceedings in favor of the Claimant and against the Respondent."
11. The petitioner herein filed statement of defence and also raised the following counter claims :-
"Counter Claim No. 1 O.M.P. (COMM) 131/2017 Page 4 of 26... a sum of Rs. 17, 84, 13,410/- (Rupees Seventeen Crcres Eighty Four Lakhs Thirteen Thousand Four Hundred and Ten Only) are due and payable by the claimant to the respondent towards MPLS STM 4 Bandwidth charges the share of the revenue collected by the claimant under the Franchisee Agreement...Counter Claim No. 2
Cost of Arbitration of Rs. 10 lakhs"
12. The Arbitral Tribunal by its Award dated 27.10.2016 directed the respondent herein to pay to the petitioner inter-city bandwidth charges at the rate of Rs.5/- per connection, per month, for the period of actual operation in all the 18 cities upto 31.12.2014, post which the inter-city bandwidth was disconnected in 10 cities. The counter claims of the petitioner were rejected.
13. Contention of the respondent before the Tribunal was that the FA did not specify any parameter for arriving at the bandwidth / MPLS charges towards inter-city bandwidth and this was an admitted fact by the petitioner as also brought out by the petitioner's witness during cross- examination in answer to Question no.33. As per the FA, the charges were to be on the basis of competitive port tariff for MPLS services. Such a clause is void under Section 29 of the Indian Contract Act, 1872. It was also argued that this was fortified by the conduct of the petitioner since the beginning of the contract. It had initially raised a provisional demand for Rs.1.12 Crores but thereafter it was increased to Rs.14 Crores per annum and finally, revised to Rs.17.84 Crores. Even the demand for 20 cities was illegal as admittedly for Jaipur and Sangrur, no charges were payable.
O.M.P. (COMM) 131/2017 Page 5 of 2614. The respondent also argued that there was no evidence as to how the figures claimed were arrived at. The demand of Rs.40 Crores was stated to be based on a tariff circular dated 14.11.2008 which was applicable to prospective customers. In reply to Question 65, petitioner's witness had agreed that the demand sent on 26.10.2012 was not based on the said circular. The witnesses of the petitioner categorically stated that they were not aware how the figure of Rs.17.84 Crores had been worked out and one of the witnesses, Mr. M.H. Puranik had deposed that even this demand was only provisional.
15. Respondent had further disputed the case of the petitioner that it had published the competitive tariff rates on its website. It was argued that if that was so, the FA would have specifically stated so. It was also argued that had there been any rate available on the website, the demand notice should have raised a final demand quoting the said rates and in fact, the BSNL itself never relied on any rates available on the internet, prior to the disputes arising and therefore, this was nothing but an after- thought.
16. The respondent further argued that the services were to be provided by the petitioner at affordable rates. Respondent had invested Rs.150 Crores in the project, besides a huge cost of Rs.6.86 Crores as contents costs. The total revenue generated was Rs.7.92 Crores till 31.12.2014 after which Rs.79.14 Lakhs had been shared with BSNL. Thus, the demand was not only arbitrary but against any business sense of entering into a commercial venture.
17. Petitioner herein argued before the Tribunal that the MPLS charges decided by the petitioner were to be final, as per the terms of the FA. It O.M.P. (COMM) 131/2017 Page 6 of 26 was submitted that the inter-city charges were payable in advance by the respondent as per Clause 4.3.4 of the FA. The petitioner had conveyed the provisional amount payable in 2008 and 2009 itself, by which time respondent had not availed of the services and if the demand was not to its convenience, it should have refused to avail the services. Having availed the services, it was not open for the respondent to question the demands made. It was the case of the petitioner that the respondent had no intention of paying the charges and instead of paying even the tentative amount demanded, it kept on using the services and making excuses and suggestions not to charge for the services. It is wrong for the respondent to contend that there was no basis in the FA to charge for the services as the meaning of the words 'competitive rates' was unclear. It was submitted that these were internal rates fixed by the BSNL and the same were made known to the respondent through the demand notices well before it availed of the services. If the respondent had any doubts, it should have sought clarifications.
18. The petitioner had further argued that the respondent itself never placed any method or criteria for calculating the competitive prices. The tariff circular was appliable to IPTV Franchisees and hence the respondent was clearly covered under the said circular also. It was argued that the Tribunal was bound to confine itself to the provisions of the FA and could not have deviated from the same. The terms of the FA stipulated the obligations of the respondent to pay an advance and the demand having been raised by the petitioner at the outset the same should have been honoured by the respondent.
O.M.P. (COMM) 131/2017 Page 7 of 2619. Learned senior counsel for the petitioner and learned counsel for the respondent have reiterated the above arguments before this Court as well and therefore, the same are not being repeated for the sake of brevity.
20. I have heard the learned counsels for the parties and examined the contentions.
21. The Arbitral Tribunal framed three issues for adjudicating the disputes between the parties, which are as under :-
"(i) if, as per the Franchisee Agreement, parties had agreed that intercity MPLS/bandwidth connectivity was to be provided by the Respondent to the Claimant on chargeable basis and
(ii) if parties had agreed that the intercity MPLS/bandwidth connectivity was to be provided on chargeable basis, was there any agreement between the parties about rates payable by the Claimant to the Respondent for the same?; and
(iii) if there is no agreement between the parties regarding the rates payable by the Claimant to the Respondent for intercity bandwidth connectivity, can such rates be fixed by the arbitral tribunal?"
22. For deciding the first issue, the Tribunal relied upon certain clauses of the FA itself. Clause 3.6.2 provided that there shall be no charge by the BSNL for intra-city connectivity and bandwidth. As per clause 3.6.3, the charges for inter-city bandwidth were competitive rates of BSNL. The Tribunal also relied upon clause 4.3.4 which provided for the petitioners receivables and bandwidth charges were a part of the list of receivable. The relevant clauses 3.6.2, 3.6.3 and 4.3.4 are as under :-
"3.6.2 Intra City connectivity and bandwidth shall be provided and shall not be charged extra by BSNL within O.M.P. (COMM) 131/2017 Page 8 of 26 city limits. Beyond city limits, it shall be provided on chargeable basis.
3.6.3 Inter-city bandwidth shall be provided to the franchisee on competitive rates of BSNL as the franchisee is expected to locate a separate VoD server for the additional city. BSNL shall be given first right of refusal by the bidder for providing the intercity bandwidth requirement of the franchisee. 4.3.4 The BSNL receivable from the franchisees are bandwidth charges, co-location charges and share of advertisement revenue. The Bandwidth charges and co- location charges as applicable, shall be paid by the franchisee in advance as per commercial conditions of revenue, franchisee shall furnish a declaration of total receipts on this account certifying the shareable revenue to designated officer of BSNL by 7th of each month, along with his bill. BSNL shall settle the claim of revenue share after deducting the amount receivable on account of its own revenue share of advertisement revenue, and statutory levies if any, as per clause 4.3.2 and 4.3.3 above."
23. Having analyzed the clauses, the Tribunal answered the first issue as under :
"12. As far as the first issue is concerned, the answer is contained in the Franchise Agreement itself. Clause 3.6.2 and 3.6.3 makes clear distinction about the intra city bandwidth and intercity bandwidth. Clause 3.6.2 states that intra city connectivity and bandwidth shall be provided and shall not be charged extra by BSNL within city limits. Whereas clause 3.6.3 talks about intercity bandwidth and states that the same shall be provided on competitive rates of BSNL. Provisions similar to clauses 3.6.2 and 3.6.3 are also there in clauses 4.5.1 and 4.5.2 respectively of the Franchise Agreement. Even clause 4.3.4 throws some light on this issue. It provides for BSNL's receivables from the franchisee/claimant and O.M.P. (COMM) 131/2017 Page 9 of 26 'bandwidth charges' is one of the few items included in the list of receivables of BSNL from Franchisee. Therefore, there is no room of doubt that the contract clearly provides that intra city bandwidth within city limits would be provided free of cost but intercity bandwidth was to be provided on chargeable basis. This understanding on the part of the Claimant also comes out clearly from the correspondences relied upon by the Claimant itself. Claimant never denied or disputed its liability to pay for the intercity bandwidth connectivity used by it but its requests/representations to the Respondent were confined to charging the same at reasonable rates. The fact that Claimant himself submitted different proposals to the Respondent for payment of bandwidth charges also shows that Claimant was always aware that it was liable to pay for the intercity bandwidth connectivity, being used by it. During the cross examination, Claimant's witness Mr. Lalit Kumar also agreed that intercity bandwidth is chargeable at reasonable prices. (Q-21) Therefore, I hold that the parties had agreed, under the Franchise Agreement that intercity bandwidth would be provided to the Claimant on chargeable basis."
24. As regards the second issue, the Tribunal examined clauses 3.6.3 and 4.5.2. Clause 4.5.2 reads as under :-
"4.5.2 For provision of VoD & IP TV/ Broadcast TV services to the customers, Inter-City bandwidth shall be provided, provided on chargeable basis at the competitive port tariff for MPCL service from time to time."
25. Based on the provisions of the clauses as well as the arguments of the parties as well as the documents and the evidence before it, the Tribunal came to a conclusion that there was no agreement between the parties regarding the rates of inter-city charges and the contract had no O.M.P. (COMM) 131/2017 Page 10 of 26 provisions on the basis of which the competitive rates could be calculated. The Tribunal observed that from the correspondences exchanged between the parties, it was clear that both were acting on their own interpretation and had no consensus on the issue of calculation of the charges. It came to a finding that there was no parameter in the contract for deciding the charges for inter-city connectivity. The Tribunal rejected the contention of the petitioner that the competitive rates were available on its website and observed that if that had been the case, the contractual clauses would have referred to the rates on website. In fact, the Tribunal also noted that wherever the bidders were required to make a reference to the website, it was so stated specifically in the bid documents. The Tribunal also found that prior to June 2008, petitioner was not providing IPTV service and there was thus no possibility of any rates being available on internet. The vast gap between the different demands made by the petitioner was another factor which weighed with the Tribunal to conclude that no rates were available on the website. Tribunal also relied on the cross-examination of the petitioner's witness who had agreed that the FA had no parameters for deciding the competitive rates including the ignorance of the witnesses about the methodology by which the demands were raised. Relevant part of the Award reads as under:-
"17. It is, therefore, clear that parties were adopting different basis for calculation of intercity bandwidth charges, which establishes that there was no parameter in the contract for deciding the bandwidth charges for intercity connectivity. Respondent's contention that the competitive rates was a reference to the rates available on the internet is not correct as if that was so, contract clauses would have been differently worded. Claimant O.M.P. (COMM) 131/2017 Page 11 of 26 has pointed out that wherever bidders were required to make reference to BSNL's website, a specific reference was made in the bidding document. Secondly it has come on record that prior to tune 2008 BSNL was not providing IPTV service, therefore, there was no possibility of any rates to be charged from IPTV franchisee being available on internet. Furthermore, there was a vast difference between the demands made by the Respondent at different points of time. If the rates were so available, as stated by the Respondent, nothing prevented the Respondent from making the final demand forthwith. What is also relevant to note here is that as per the Franchise Agreement, Claimant was not buying bandwidth from the Respondent. Such a bandwidth was to be used by the Claimant for providing IPTV service, exclusively to BSNL's customers under the Franchisee Agreement. Therefore, even if any rates for intercity bandwidth was available on Respondent's website, the same would not have been relevant for the bandwidth charges to be paid by a franchisee under the Franchise Agreement. Respondent has placed reliance on its tariff circular dated 14.11.2008 based on which provisional demand dated 11.12.2008 was raised. However, it was admitted by its witness during the cross examination that the final demand dated 26.10.2012 was not based on tariff circular dated 14.11.2008. Respondent's contention is also not acceptable in view of the fact that till 12.7.2010, Respondent could not raise any final demand towards bandwidth charges, which was not possible if there was any tariff available on Respondent's website as payable by a Franchisee, like the Claimant, for using intercity bandwidth.
18. During cross-examination, Respondent's witness agreed that contract contained no parameter for deciding the competitive rate for intercity bandwidth connectivity. (Q-33) Respondent's witness also expressed ignorance about the manner in which different demands raised by the O.M.P. (COMM) 131/2017 Page 12 of 26 Respondent, were arrived at. Respondent's witness refused to answer the question as to how the demand dated 26.102.12 was based on competitive rate
19. For the reasons stated above, I hold that there was no agreement between the parties regarding the rates of intercity MPLS/bandwidth payable by the Claimant to the Respondent. Contract contains no provisions on the basis of which competitive rate/tariff for intercity bandwidth could be calculated."
26. Having gone through the Award, this Court is of the view that there is no patent illegality or perversity in this part of the Award. The Tribunal has relied on the clear wordings of the clauses 3.6.2 and 3.6.3 where it was clearly stipulated that intercity bandwidth would be provided to the respondent on chargeable basis. In so far as the second issue is concerned, the entire record was replete with the fact that the petitioner sent repeated demand notices for paying the inter-city bandwidth charges, but each notice contained a different figure payable by the respondent and that too, provisional. As rightly held by the Tribunal the figures were nowhere near each other clearly indicating that there was no set parameter to decide the rates and this also fortified the stand of the respondent that there were no rates placed by the petitioner on the website. The Tribunal was right in its observations that the contract did not have any provision stipulating the actual rates chargeable and nor was the petitioner able to point out any such provision. The witnesses of the petitioner on the other hand admitted that there was no fixed criteria under the contract for determining the charges. There is thus no illegality in this finding of the Tribunal.
O.M.P. (COMM) 131/2017 Page 13 of 2627. The third and the most crucial issue between the parties was the rates at which the payments were to be made by the respondent in the absence of there being any stipulated rates in the Agreement.
28. The Tribunal was of the view that since there were no rates in the Agreement or even on the website, the Tribunal could fix the rates on a reasonable criteria and reliance was placed for this purpose on the judgment of the Orissa High Court in the case of Rajkishore Mohanty and Anr. Vs. Banabehari Patnaik; MANU/OR/0020/1951. This apart, the Tribunal has noted in the Award that the parties were ad idem that the Tribunal could fix a reasonable rate and this was within its domain and jurisdiction.
29. The Tribunal decided the said issue as under :-
22. It is also to be noted that tariff to be charged from the BSNL's customers were to be fixed by the Respondent. During the course of the arguments, I was informed by the parties that revenue generated from providing IPTV service has been shared between them as per the agreed ratio. Claimant's witness Mr. Guarav Mehta has stated in his affidavit dated 21.2.2015 that the total revenue generated by operation of IPTV services is Rs. 791.66 lakhs as on 31.12.2014 out of which Rs. 79.15 lakhs has been paid to the Respondent.
The figures of total revenue generated and contents cost incurred by the Claimant have been certified by M/s. PC Bindal & Co. in its certificate dated 18.2.2015 which is Exhibit 1 to the affidavit of Mr. Gaurav Mehta. In support of the contention that Claimant had incurred content cost of Rs. 6.86 crores, Claimant filed additional affidavit dated 14.1.2016 of Mr. Gaurav Mehta to place on record details of payments made by the Claimant to different content providers. Claimant had also undertaken to produce its books of accounts and O.M.P. (COMM) 131/2017 Page 14 of 26 documents supporting the content costs, for inspection of the Respondent, which was not availed by the Respondent. Claimant's figure of revenue generated and shared between the parties has not been disputed by the Respondent.
23. Claimant has incurred almost the same amount towards content cost, as is the amount of revenue generated by the Claimant from operation of the IPTV services. This is without taking into account the other investment Claimant was required to make to establish necessary infrastructure for making IPTV services operational. The tariff to be charged from the customers is also decide by the Respondent. Though it is true that every party doing the business has to take some risk, in the present situation it applies to both the parties, as agreement between them was admittedly a business model. It is clear that the parties have entered in to agreement without specifically agreeing as to how the intercity bandwidth charges would be arrived at. Claimant undertook to bear the cost of infrastructure required for provisioning of IPTV service and Respondent permitted use of its already available bandwidth, as admitted by Respondent's witness in reply to Q.19, for the same. What would be the charges for use of the intercity bandwidth was not agreed to between the parties. In a business venture like the one envisaged in the EOI, it was natural for the Claimant to believe that bandwidth cost would be within the commercial viability of the business. Similarly, Respondent would not have thought of charging high bandwidth cost otherwise it would have clearly made a provision in the contract, which has not been done. Again, if at all Respondent was expecting high bandwidth charges, as are being demanded now, it would have decided the customer tariff in such a manner so that such cost of bandwidth could be recovered from the revenue so generated, which has not been done. Respondent cannot provide IPTV service to its customer at the cost of O.M.P. (COMM) 131/2017 Page 15 of 26 Claimant. Therefore, the demand of bandwidth charges by the Respondent is neither justified nor reasonable but is excessive and bad in law. Demand made in demand note dated 26.10.2012 of the Respondent is set aside.
Award Genesis of Franchisee agreement is that both the parties are able to make reasonable profit out of the revenue generated from the business over a period of time and not out of the cost paid by one another to provide the services. This required efforts on behalf of both the parties to take all possible measures to promote and grow business by increasing the customer base using Broadband.
While Agreement contemplated provision of intercity bandwidth on competitive rates which was a very vague term. In order to provide services to customers at affordable rates, It is necessary that competitive rates of Bandwidth are fixed so that business remains viable to both the parties, This is possible only when cost incurred by the parties is covered out of the revenues earned over a period of time.
Charges claimed by the respondent for intercity Bandwidth are much more than the total revenue earned. Thus these charges cannot be called competitive. Moreover it is seen that total cost incurred by the claimant on equipment and content is much more than the total revenue earned. If the Bandwidth charges claimed by respondent are also added then the whole business becomes totally unviable.
Claimant has been representing to the respondent to arrive at bandwidth charges on competitive rates immediately after signing the agreement.
Claimant has proposed payment of bandwidth charges on any of the following basis:
A. Once BSNL Broadband subscriber base reaches 1,00,000 or IPTV subscriber base crosses 15,000 in a city/town, onetime fee of Rs.30 lacs for 9 years or O.M.P. (COMM) 131/2017 Page 16 of 26 annual charges of Rs. 6 lacs per year can be charged for upto 300 mbps MPLSVPN Bandwidth. B. Rs.5/- per commercial connection per month as bandwidth cost.
C. Increase of revenue share of BSNL to 11.5% in place of 10% as agreed under the agreement in lieu of no charges for intercity bandwidth.
Option of onetime fee, proposed by the Claimant towards intercity bandwidth cost was conditional to Subscriber base of Broad band and IPTV reaching certain threshold value which has not happened. Regarding Claimant's proposal of change of revenue sharing percentage, the same cannot be directed as both the parties are bound by the terms of the contract agreed between the parties which cannot be changed. Therefore, the viable option is to fix the bandwidth charges on the basis of a fixed rate per month per connection.
Claimant has proposed charging Rs. 5 per connection per month. I accordingly direct that Claimant shall pay to the Respondent intercity bandwidth charges at the rate of Rs. 5 per connection per month for the period of actual operations in all the 18 cities (other than Jaipur and Sangrur). It has come on record that post 31.12.2014, IPTV services are not being provided in any of the cities using intercity bandwidth. Intercity bandwidth was disconnected in 10 cities as per Respondent's letter dated 26.3.2013, Exhibit 2 to CW-2's affidavit dated 21.2.2015. Intercity bandwidth was disconnected in remaining 8 cities as per Respondent's letter dated 21.11.2014, Exhibit 3 to CW-2's affidavit dated 21.2.2015. Therefore, under the Franchisee Agreemen, Claimant is not required to pay any further amount towards bandwidth charges for the period after 31.12.2014. Claimant shall pay the amount calculated at the rate of Rs.5 (Five only) per connection per month to the Respondent within 30 days of receipt of this award."O.M.P. (COMM) 131/2017 Page 17 of 26
30. The Tribunal has based its finding on common business sense as well as certain proposals submitted by the respondent. It held that the charges claimed by the petitioner were much more than the total revenue earned and thus, could not be termed as competitive. If the costs incurred by the respondent on the equipment and content are looked at then the charges if added would make the entire venture unviable. Respondent had made three alternate proposals for fixing the rates. The Tribunal in its wisdom and analysis chose the criteria of charging Rs.5/- per connection, per month, which according to the Tribunal was the most viable option. A detailed reasoning has been given by the Tribunal to arrive at this conclusion.
31. The main grievance of the learned Senior Advocate for the petitioner is that the Tribunal has arbitrarily fixed this rate, purely on the basis of a letter dated 11.04.2009 written by the respondent and is not based on any material. The Tribunal has not considered that from June 2008 to November 2014, not a single penny was paid by the respondent. The Tribunal has also ignored the letter of the petitioner written on 31.08.2010 whereby it had made it clear to the respondent that if the rates appeared to be on the higher side, then it could take the facility from any other service provider. Once the respondent accepted to take the facilities from the petitioner, it would be deemed that it had accepted the higher rates.
32. Responding to this, learned counsel for the respondent submits that the parties had agreed that the Tribunal would fix the reasonable rates payable by the respondent. Once the Tribunal exercised this power and arrived at a figure, it is not open to this Court under Section 34 of the Act, O.M.P. (COMM) 131/2017 Page 18 of 26 to review the said finding and conclusion. It is argued that it is a matter of record that petitioner adduced no evidence of the so-called competitive charges and nor were there any, else the contract or the website would have stated so. Three proposals were given by the respondent but the petitioner did not raise any objection to either one of them. The Tribunal, in the absence of any evidence being led by the petitioner to the contrary has arrived at a figure which was uncontroverted by the petitioner and this is not only a possible but a plausible view. Reliance is placed on the judgment of the Supreme Court in Associate Builders vs. Delhi Development Authority (2015) 3 SCC 49, to contend that it is not for the Courts to re-appreciate the evidence led before the Tribunal.
33. In my view, the respondent is correct in arguing that the Tribunal has given a well-reasoned finding and it is not open for this Court to review the same in the present proceedings. The parties were ad idem that the Tribunal could fix the reasonable rates. The Tribunal analyzing the evidence and the documents on record, found that no rates had been fixed by the BSNL in the FA and there were none as alleged, on the website. The petitioner did not give any proposal for fixation of the rates and did not even controvert any of the three proposals given by the respondent. The Tribunal in its assessment found that the one of the proposals of the respondent was a viable option and accordingly, determined the rate at Rs.5/- per connection per month. The finding is well-reasoned and in the opinion of this Court not only a possible but a plausible view.
34. The Supreme Court in the case of Associate Builders (supra), held as under :-O.M.P. (COMM) 131/2017 Page 19 of 26
"19. When it came to construing the expression "the public policy of India" contained in Section 34(2)(b)(ii) of the Arbitration Act, 1996, this Court in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629] held: (SCC pp. 727-28 & 744-45, paras 31 & 74) "31. Therefore, in our view, the phrase „public policy of India‟ used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term „public policy‟ in Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal. The result would be--award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
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 the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void.
***
74. In the result, it is held that:
O.M.P. (COMM) 131/2017 Page 20 of 26(A)(1) The court can set aside the arbitral award under Section 34(2) of the Act if the party making the application furnishes proof that:
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the Arbitral Tribunal was not in accordance with Part I of the Act,
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act.
However, exception for setting aside the award on the ground of composition of Arbitral Tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogate.
(c) If the award passed by the Arbitral Tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.
O.M.P. (COMM) 131/2017 Page 21 of 26(3) The award could be set aside if it is against the public policy of India, that is to say, if it is 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.
(4) It could be challenged:
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act.
(B)(1) The impugned award requires to be set aside mainly on the grounds:
(i) there is specific stipulation in the agreement that the time and date of delivery of the goods was of the essence of the contract;
(ii) in case of failure to deliver the goods within the period fixed for such delivery in the schedule, ONGC was entitled to recover from the contractor liquidated damages as agreed;
(iii) it was also explicitly understood that the agreed liquidated damages were genuine pre-estimate of damages;
(iv) on the request of the respondent to extend the time-
limit for supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered;
(v) liquidated damages for delay in supply of goods were to be recovered by paying authorities from the bills for payment of cost of material supplied by the contractor;
(vi) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way unreasonable;
(vii) in certain contracts, it is impossible to assess the damages or prove the same. Such situation is taken care of by Sections 73 and 74 of the Contract Act and in the present case by specific terms of the contract."
O.M.P. (COMM) 131/2017 Page 22 of 2635. In the case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India Ltd. 2019 SCC OnLine SC 677, the Supreme Court has laid down the Guidelines regarding the scope of interference by Court under Section 34 of the Act in the findings and conclusions of an Arbitral Award. Relevant para reads as under :-
"35. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law" as explained in paragraphs 18 and 27 of Associate Builders (supra), i.e., the fundamental policy of Indian law would be relegated to the "Renusagar" understanding of this expression. This would necessarily mean that the Western Geco (supra) expansion has been done away with. In short, Western Geco (supra), as explained in paragraphs 28 and 29 of Associate Builders (supra), would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in paragraph 30 of Associate Builders (supra).
36. It is important to notice that the ground for interference insofar as it concerns "interest of India" has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paragraphs 36 to 39 of Associate Builders (supra), as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
O.M.P. (COMM) 131/2017 Page 23 of 2637. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paragraphs 18 and 27 of Associate Builders (supra), or secondly, that such award is against basic notions of justice or morality as understood in paragraphs 36 to 39 of Associate Builders (supra). Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco (supra), as understood in Associate Builders (supra), and paragraphs 28 and 29 in particular, is now done away with.
38. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2A), 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 not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
39. Secondly, it is also made clear that re-appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
40. To elucidate, paragraph 42.1 of Associate Builders (supra), namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Paragraph 42.2 of Associate Builders (supra), however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
O.M.P. (COMM) 131/2017 Page 24 of 2641. The change made in Section 28(3) by the Amendment Act really follows what is stated in paragraphs 42.3 to 45 in Associate Builders (supra), namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2A).
42. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also 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."
36. Recently in the case of Hindustan Construction Company Limited & Anr. Vs. Union of India & Ors., 2019 SCC OnLine SC 1520, the Supreme Court has further narrowed down the scope of interference. The relevant para reads as under :-
"55. Further, this Court has repeatedly held that an application under Section 34 of the Arbitration Act, 1996 is a summary proceeding not in the nature of a regular suit - see Canara Nidhi Ltd. v. M. Shashikala 2019 SCC O.M.P. (COMM) 131/2017 Page 25 of 26 OnLine SC 1244 at paragraph 20. As a result, a court reviewing an arbitral award under Section 34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for - see Associated Construction v. Pawanhans Helicopters Ltd. (2008) 16 SCC 128 at paragraph 17.
56. Also, as has been held in the recent decision Ssangyong Engineering & Construction Co. Ltd. v. NHAI 2019 SCC OnLine SC 677, after the 2015 Amendment Act, this Court cannot interfere with an arbitral award on merits."
37. Section 34 of the Act, as judicially interpreted from time to time, has encapsulated the strict parameters on which interference is called for by the Courts.
38. Examining on the touchstone of the said law, while traversing through it, in my view, none of the parameters laid down permit this Court in its powers of judicial review to interfere with the impugned Award.
39. There is no merit in the petition and the same is accordingly dismissed.
I.A. 3379/2017In view of the petition being dismissed, no orders are required in the present application.
I.A. 2642/2019Bank Guarantees have expired on 25.11.2019. Since the petition has been dismissed, no order is required in the present application.
JYOTI SINGH, J th MARCH 4 , 2020 yg/yo/ O.M.P. (COMM) 131/2017 Page 26 of 26