Delhi District Court
Kcm Petrotech vs Indian Oil Corporation Ltd on 5 April, 2021
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
ARBTN No. 5300/2018
KCM Petrotech
16-2/740/65A, Kalyan Nagar,
Dilkhush Nagar, Hyderabad ...Petitioner
vs
Indian Oil Corporation Ltd.
R&D Centre, Sector 13, Faridabad ...Respondent
Date of Institution : 19/09/2018
Arguments concluded on : 04/03/2021
Decided on : 05/04/2021
Appearances : Sh. Mohit D. Ram, Ms. Monisha Handa and
Sh. Ramesh Singh, Ld. Counsel for petitioner.
Ms. Rimali Batra and Mahip Singh, Ld. Counsel
for respondent.
JUDGMENT
1. Petitioner has filed the present petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act), seeking setting aside of arbitral award dated 13/06/2018, stated to be received by petitioner on 25/06/2018, passed by Ld. Sole Arbitrator Sh. A.K Shahi in the matter titled as M/s Indian Oil Corporation Limited and M/s KCM Petrotech. Vide impugned award Ld. Sole Arbitrator awarded sum of Rs 1,02,44,925/- with interest @ 12% per annum from the date of award till payment in favour of the claimant/respondent payable by the petitioner.
2. I have heard Sh. Mohit D. Ram, Ms. Monisha Handa and ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 1 of 43 Sh. Ramesh Singh, Ld. Counsel for petitioner; Ms. Rimali Batra and Mahip Singh, Ld. Counsel for respondent and perused the relied upon precedents and record of the case as well as arbitral proceedings record and given my thoughtful consideration to the rival contentions put forth.
3. Shorn of unnecessary details, the facts of the case of the parties are as follows. Petitioner and respondent/claimant signed a Technology Formulation and Transfer Agreement termed as Memorandum of Agreement (in short MoA) on 08/07/2005 where under the claimant/respondent agreed to provide the Technology/Formulation developed by them alongwith related knowhow owned and possessed by them to the present petitioner against payment of one time Licence Fee of Rs. 27 Lakhs and royalty payment @ 1.5% on all the sale proceeds of the Product (cationic bitumen emulsion produced by use of claimant's Technology formulation and know-how). The contract was initially for a period of six (6) years with effect from 08/07/2005 till 07/07/2011. The contract also inter alia provided that the parties may review the conditions of agreement one year before expiry of agreement and enter into fresh Agreement if they so mutually agreed. One of the conditions expressly provided and agreed between the parties under clause 11.3 of the MoA was that expiry of the MoA shall not affect the rights, obligations and liabilities of the parties described in Article 4.0 (Ownership), Article 5.0 (confidentiality of Technical Information) and Article 6.2 (Royalty) of the MoA. However, the parties were free to review Article 4.0, 5.0, and 6.2 of the MoA one year before the expiry of the MoA. Under said MoA, royalty was to be paid by ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 2 of 43 the petitioner to the claimant/respondent twice a year i.e., on 1 st April and 1st September each for the previous six months period. While making payment of royalty for previous six months, petitioner was under obligation to provide to the claimant/respondent a statement of royalty accruing and due during the six months period to which the statement relates and was to be supported by all information necessary to verify the correctness of the royalty statement. For the six years period of MoA dated 08/07/2005, terms were complied by the parties and no dispute of any kind arose between them about performance of their respective obligations. Aforesaid MoA dated 08/07/2005 also contained the following relevant clauses:-
"11.0 TERM & TERMINATION OF MOA 11.1 This agreement shall come into force upon its signature and unless priorly terminated pursuant to the provisions of this MOA shall remain valid for an initial period of 6 (six) years from the date of signatures. The parties may review the conditions of Agreement one year before the expiry of Agreement and enter into fresh Agreement if they so mutually agree.
11.2 Either Party may at its election terminate this Agreement forthwith by written notice to the other party upon material breach of the terms of this Agreement by such other party and if such breach continues unremedied for more than 60 days after notice thereof is given to the Party committing the breach.
11.3 Upon termination of this Agreement:
All rights granted pursuant to this Agreement to KCMP shall forthwith cease and stand withdrawn and KCMP shall forthwith cease the use of IOC(R&D)'s Technical Information, Intellectual Property Rights and any improvements involving and related to use of IOC(R&D)'s Technical Information thereto Upon expiry of this Agreement:
The expiry of this Agreement shall not affect the rights, obligations and liabilities as herein described in Article ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 3 of 43 4.0 (Ownership) Article 5.0 (Confidentiality of Technical Information), Article 6.2 (Royalty). However parties may review Article 4.0, 5.0 and 6.2 of the agreement one year before the expiry of the agreement and enter into a fresh agreement if they mutually agree.
12.0 ARBITRATION Any dispute or difference whatsoever arising between the Parties out of or relating to the construction, interpretation, application, meaning, scope, operation or effect of this Agreement or the validity or breach thereof, shall be settled by arbitration in accordance with the Rules of Arbitration of the "SCOPE Forum of Conciliation and Arbitration" and award made in pursuance thereof shall be binding on all the Parties."
4. About six months prior to the expiry of six years period of MoA, the Managing Partner of the petitioner company by his following letter dated 05/01/2011 made a request to the claimant/respondent for renewal of the MoA dated 08/07/2005:-
"Date:05.01.2011 To, General Manager (Co--Ordinator & I.P) Indian Oil Corporation Ltd., Research & Development Centre, Sector-13, FARIDABAD-121 007.
Kind Attn: Sri Anup Kackerji Dear Sirs, Sub: Request for Renewal of Agreement. Re: Technology/Formulation Transfer Agreement--Cationic Bitument Emulsion as per IS:8887-2004---M O A. Dt.08th July, 2005--Valid upto 7th July, 2011 You are kindly aware that we have entered into Memorandum of Agreement with your organization on 8th July, 2005 for blending & sales of Cationic Bitument Emulsion which is valid up to 7th July, 2011.
During this period i.e., upto 30th September, 2010, we have uplifted Bitumen quantity of 10.4 TMP from IOC Visakhapatnam & Chennai and sold Cationic Bitumen Emulsion of 14.87 TMT. We have paid an amount of Rs. 54,32,600/- upto 31st March, 2010 towards Royalty @ 1.5% on Basic rate. We have invested around Rs 3 Crores for establishing the Bitumen emulsion of IOC in the market and ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 4 of 43 covered Andhra Pradesh.
In view of this, we would like to extend the agreement period for another 5 years for the mutual benefit of our esteemed organisations. Accordingly, kindly confirm us your acceptance to go ahead and complete the formalities.
We look forward to continuance of our relationship with your esteemed organisation which we have established over the last
5 years.
Awaiting your confirmation as early as possible.
Thanking You.
With regards, Yours sincerely, For KCM PETROTECH S.KRISHNA Sd-
Managing Partner."
5. Afore elicited request of petitioner for renewal of the MoA and to complete the formalities for the extension of agreement period for another 5 years was considered by the claimant/respondent. A senior level team of the parties met on 22/06/2011 and negotiated the terms and conditions for the proposed renewal/extension for next five (5) years i.e., from 08/07/2011 to 07/07/2016. The petitioner was represented by their two Managing Partners. A royalty at the rate of 2% of Ex- Factory Basic Price plus Service tax as applicable from time to time was finally agreed between the Parties to be paid by the respondent during next five years period. It was expressly agreed that the new rate of 2% would be effective from 08/07/2011 and would remain valid for five (5) years i.e., upto 07/07/2016. The agreement so reached in the meeting on the new rate of royalty was reduced in writing and document conveying their agreement for renewal of the Licence/knowhow at the rate of 2% royalty ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 5 of 43 was signed by and between the parties on a plain paper. There was no discussion or change on any other terms and conditions of the MoA dated 08/07/2005 covered in the document signed by the parties viz., Minutes of Meeting (in short MoM) dated 22/06/2011, whose text is as follows:-
"June 22, 2011 Subject:Renewal of License for manufacturing Cationic Bitumen Emulsion by M/s K C M Petrotech Hyderabad The existing MOC with M/s KCM Petrotech, Hyderabad (KCM) is expiring on 07.07.2011. As per the existing MOC, KCM was paying royalty @ 1.5% on the ex-factory basic price of the product sold by them.
In order to renew the MOC a meeting was held at R&D Centre to review the terms/conditions/royalty rate of the MOC. Following representatives from KCM and nominated officers from R&D Centre participated the meeting.
From R&D Centre From KCM
Dr M C Jain, DGM (Bit) Mr K Gajjalalah, Managing Partner
Mr R C Goyal, DGM (F) Mr M Verabhadraiah, Consultant
Mr N R Radhrishnan, CRM (CD) Mr. S Krishna, Managing Partner During the deliberations both the parties kept their point of view. KCM presented the data of Royalty being paid to IOC which started @ Rs. 205/- per MT in 2005 and the same has gone to Rs. 417/- Per MT as on date i.e., increase of almost 100% due to increase in the prices of Bitumen.
IOC(R&D) was insisting on royalty rate of 4% for the new terms of MOC. KCM were reluctant to increase in royalty rate keeping in view the market competition, credit facilities to clients and thin margins on the sales. Despite our best persuasion they were not at all agreeing for increase in royalty rate.
During the second round of discussion, post lunch, KCM somehow agreed for nominal increase of 0.10% to 0.15% which was not acceptable to IOC. Finally both the parties agreed for the Royalty Rate of 2% of Ex-Factory Basic Price + Service-tax as applicable from time to time. The new rate of royalty will be effective from 08.07.2011 and will remain valid for five years i.e., upto 07.07.2016.
Dr M C Jain Sd/- Mr K Gajjalalah Sd/-
ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 6 of 43
Mr R C Goyal Sd/- Mr M Verabhadraiah, Sd/-
Mr N R Radhkrishnan Sd/- Mr. S Krishna Sd/-"
6. One of the conditions for providing Technology/
Formulation of claimant/respondent agreed under the MoA dated 08/07/2005 was that the petitioner was to procure 100% bitumen from the claimant/respondent only.
7. Para 9 of impugned arbitral award finds mention that after reaching the agreement on new rate of royalty, the petitioner acted upon the said agreement and as being done by them in the past, petitioner continued to submit six monthly royalty statement upto 31/03/2013 but stopped sending such statement thereafter. During the extended period, petitioner paid following amount towards royalty:
i) Rs 6,18,665/- for period up to 30.0.2011 @ 2% (not in dispute)
ii) Rs 10,00,000/- vide cheque dt 30.11.2012 (Ad-hoc)
iii) Rs 9,06,687/-. Receipt acknowledged by the Claimant/ Respondent.
8. Petitioner vide letters dated 20/06/2013, 16/01/2014, 09/05/2014, 09/05/2014 and 16/11/2015 requested for reduction in rate of royalty from 2% to 0.5% to the claimant/respondent, so that petitioner was able to face competition. Petitioner also informed the claimant/respondent that if new royalty rate was not reduced as requested, then it was difficult for them to continue their business as per terms agreed.
9. Claimant/respondent had been requesting the petitioner for compliance of the terms of the MoA/Technology Transfer Agreement dated 08/07/2005 for furnishing six monthly royalty ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 7 of 43 statements and based on the royalty statements payment of royalty in terms thereof as agreed on 22/06/2011. On non furnishing of royalty statement and non payments of the royalty despite reminders, claimant/respondent notified existence of dispute and invoked arbitration vide letter dated 26/08/2015 in terms of Clause 12.0 of the MoA. Ld. Sole Arbitrator was appointed by Scope Forum of Conciliation and Arbitration (SFCA in short) vide letter dated 21/06/2017 received on 23/06/2017 by Ld. Sole Arbitrator after which Ld. Sole Arbitrator entered upon reference. Arbitral proceedings culminated into the impugned arbitral award.
10. Impugned arbitral award has been assailed by the petitioner on the following grounds:-
A. Clause 11.1 of the Agreement had a requisite of a fresh agreement to be executed between the parties upon the expiry of the Agreement dated 08/07/20015. No formal Agreement had been executed between the parties upon expiry of agreement dated 08/07/2005, as contemplated by Clause 11.1 of Agreement. Thus, the requisite condition of Clause 11.1 i.e., fresh agreement was not met.
B. Ld. Sole Arbitrator erred in failing to appreciate that the Minutes of Meeting (MoM) dated 22/06/2011 is only an agreement to agree i.e., a contract to enter into a new contract, which new Contract, was never executed. A contract to enter into a Contract is unenforceable in law.
C. It is settled law that unlike an extension, where it ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 8 of 43 is not necessary to have a fresh deed executed, as the extension for the term agreed upon shall be a necessary consequence of the clause for extension. However, option for renewal consistently with the covenant for renewal has to be exercised consistently with the terms thereof and, if exercised, a fresh deed of lease shall have to be executed between the parties. D. Ld. Sole Arbitrator failed to appreciate that an enforceable contract could have only been that Contract which could have been executed in terms of Clause 11.1.
E. Ld. Sole Arbitrator failed to appreciate the language of Clause 12.0. The use of the words 'of this agreement or the validity or breach thereof' makes it amply clear that arbitration, as a mode of dispute resolution, is confined only to the Agreement containing the Arbitration Clause i.e., Agreement dated 08/07/2005. The words in the arbitration clause do not read to provide that 'Any dispute or difference whatsoever arising between the parties out of or relating to the construction, interpretation, application, meaning, scope, operation or effect of this Agreement and any renewal or the validity or breach thereof.' F. The Minutes of Meeting dated 22/06/2011 cannot be read to mean a renewed Agreement of the Agreement dated 08/07/2005.
G. International conventions on arbitration as well as the UNCITRAL Model Law mandate that an arbitration ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 9 of 43 agreement must be in writing. Section 7 of The Act affirms the same principle.
H. Ld. Sole Arbitrator has proceeded on a wrong premise, and wrong assumed jurisdiction, on the ground that other terms and conditions post 07/07/2011 continued to govern in essence and spirit. As per settled law an agreement to arbitrate has to be express and unambiguous and cannot be implied 'in essence and spirit.' I. The principle applicable to other terms and conditions of an Agreement cannot be made applicable to an Arbitration Agreement so as to make it binding on implication. It is settled law that an Arbitration Agreement ought to be expressly stated for it to be binding upon the parties. It is one thing to say that the other terms and conditions of the Agreement dated 08/07/2005 would be applicable to the alleged Agreement arrived at by virtue of the Minutes of Meeting dated 22/06/2011, however, it cannot be said that the Arbitration Clause could also be applicable to the said minutes of meeting on the same principle. J. Ld. Sole Arbitrator lost sight of the scope and intent of Section 7(5) of the Act, which has been summarised in the case of Inox Wind Ltd. Vs Thermocables Ltd, (2018) 2 SCC 519 and none of the conditions as mentioned in the aforesaid case have been met in the present case. The Minutes, the breach of which has been alleged, does not expressly or by implication incorporate the Arbitration Clause as ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 10 of 43 contained in Clause 12 of the agreement dated 08/07/2005. The said minutes of meeting are confined solely to the revised rate of royalty @ 2%. The said meeting make no reference whatsoever to the effect that other terms and conditions of the Agreement dated 08/07/2005 shall be part of the agreement, if any, arrived at by the Minutes of Meeting (MoM) dated 22/06/2011. In the absence of any such reference, assumption by Ld. Sole Arbitrator that the arbitration clause is incorporated 'in essence and spirit' is clearly against the settled principles of law. K. Ld. Sole Arbitrator by coming to the conclusion that the terms and conditions contained in Agreement dated 08/07/2005, including the arbitration Clause 12, forms part of the Minutes of Meeting (MoM) dated 22/06/2011 has clearly acted against the mandate contained in Section 7 of the Act.
L. The Minutes of Meeting (MoM) dated 22/06/2011 does not contain any arbitration clause and the respondent, vide letter dated 26/08/2015, invoked the arbitration clause of already expired agreement. As per Section 7 of the Act, it is requisite that an arbitration clause should be there in writing. In the present case, Minutes of Meeting (MoM) dated 22/06/2011 amended only the royalty rates of the erstwhile Agreement, thus, it should have contained all the terms and conditions as in Agreement. In absence of arbitration clause contained in the aforesaid Minutes of Meeting, invocation of arbitration by the respondent of an ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 11 of 43 expired Agreement dated 08/07/2005 was bad in law. M. In the light of cases of Hon'ble Supreme Court i.e., (i)Young Achievers vs IMS Learning Resources Pvt. Ltd and (ii) Union of India (UOI) vs Kishorilal Gupta & Ors, the Minutes of Meeting, aforesaid, does not contain an arbitration clause and it can also not be read as an arbitration agreement as per Section 7 of the Act and the arbitration clause mentioned in Clause (iii) of the Agreement ceased to exist as the Agreement expired on 07/07/2011.
N. As per Clause 8.0 of the Agreement, no amendment to the Agreement shall be made unless it is signed by authorized representative of both the parties. O. Ld. Sole Arbitrator failed to take notice of Clause
11.3 of the Agreement.
P. Ld. Sole Arbitrator did not have the jurisdiction to conduct the arbitration proceedings since there was no arbitration clause between the parties. The impugned award has been passed solely on basis of letter dated 29/12/2016. In this case claimant/respondent has not led any evidence on basis of which the petitioner has been saddled with the liability of Rs. 1,02,44,925/-. Q. Letter dated 29/12/2016 written by the petitioner offering to pay royalty @ 0.5% is without prejudice communication addressed to respondent pursuant to receipt of communication from the Counsel for the respondent.
R. The finding arrived at by Ld. Sole Arbitrator to the effect that the letter dated 29/12/2016 has not been ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 12 of 43 denied or controverted by the petitioner is irrelevant to the controversy at hand. The contents of the letter dated 29/12/2016 are not admission of liability.
S. Ld. Sole Arbitrator failed to appreciate that the liability of the petitioner to pay the royalty can be said to arise only upon the sale proceeds from the sale of the product as defined under the Agreement dated 08/07/2005. Such royalty cannot be de hors the fact of sale proceeds.
T. As per Rule 18 of the SCFA Rules, 2003, vide communication dated 22/02/2017 SCFA suggested five names to the parties from whom the parties were supposed to nominate one common name, to be appointed as a Sole Arbitrator and in response to said letter, petitioner suggested the name of Sh. S.K Sinha, Former ED (Law), HUDCO. However, the SCFA, de hors, Rules appointed Sh. A.K Shahi as a Sole Arbitrator when the name of Sh. A.K Shahi was not even in the list of panel suggested by the SCFA. Appointment of Sole Arbitrator from beyond the panel made available to the petitioner is not only against the statutory Rules governing the arbitration procedure but also against the very principle of an independent and transparent arbitration proceedings.
U. The procedure for appointment of an arbitrator was not followed and Ld. Sole Arbitrator so appointed was against the Rules therein, the impugned award deserves to be set aside under Section 34(2)(a)(iii) of the Act.
ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 13 of 43V. The impugned award is contradictory in so far as the award of interest by Ld. Sole Arbitrator is concerned since Ld. Arbitrator has awarded interest de hors the Agreement which has been held by the Ld. Arbitrator to be governing the rights and liabilities of the parties.
W. Ld. Sole Arbitrator could not have awarded pre- reference interest from the date of cause of action as the computation amount was only determined for the first time under the impugned award. The award of interest is also bad in law since no notice claiming such interest much less from financial year 2012-13 was ever issued by the respondent.
X. The impugned award in so far as grant of interest is non speaking and unreasoned award.
Y. The respondent did never raise any specific/monetary claim against petitioner prior to serving of Legal Notice dated 11/05/2015. Hence, the legal notice is quite premature in the absence of any specific monitory claim. On the date of serving of legal notice, there exists no legally binding contract, between the parties beyond 07/07/2011 as no separate Agreement has been signed by the parties pursuant to expiry of Agreement dated 08/07/2005.
It was prayed for setting aside of the impugned arbitral award dated 13/06/2018.
11. Respondent through Counsel filed reply controverting and denying the averments of the petition. It was averred that petition ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 14 of 43 filed by petitioner is liable to be dismissed as apparently nay evidently, the same is devoid of any proof elucidating much less proving any of the circumstances stipulated under Section 2 and 2A under Section 34 of the Act. It was further averred that petition is liable to be dismissed as arbitral award passed by Ld. Sole Arbitrator is proper and has been reached fairly upon having followed due procedure and after having given adequate opportunities to the parties to place their grievances during the arbitration proceedings and overall approach of Ld. Sole Arbitrator is neither capricious nor arbitrary and that petition has been filed without having issued the pre-requisite notice which the petitioner is required to issue to the respondent prior to having filed the same and also because the petition is not accompanied by an affidavit endorsing the compliance of the issuance of said pre-requisite notice, as the same are required to be complied with as per sub Section (5) under Section 34 of the Act. It was further averred that from the contractual provisions, documents and conduct of the parties it is apparent nay evident that the petitioner had been under an obligation to pay the royalty @ 2% in terms of the agreement dated 22/06/2011 and the said MoA for the said renewed and extended period of five years commencing from 08/07/2011. It was further averred that petitioner had continued to use the technology or formulation and knowhow owned by the respondent only under the agreement or Minutes of Meeting (MoM) dated 22/06/2011 and in the absence of said MoA during the said renewed and extended period of five years commencing from 08/07/2011. It was further averred that it is most incongruous and incomprehensible to accept that during the said renewed and extended period of five years commencing ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 15 of 43 from 08/07/2011, there was no agreement in existence between the parties qua the usage by the petitioner of the technology or formulation and knowhow owned by the respondent and qua the maintenance of confidentiality in respect thereof. It was further averred that the dispute between the parties is well within the purview of the arbitration clause embodied in Article 12.0 in the said MoA. It was further averred that Ld. Sole Arbitrator had rightly concluded that the dispute between the parties pertained to the subject matter of the said MoA and that the said MoA had been in existence and had continued to operate beyond the said initial period of the said MoA. It was further averred that petitioner vide letter dated 29/12/2016 had impliedly accepted his liability to pay the royalty pursuant to the expiry of the said initial period of the said MoA but @ 0.5% and up to 31/03/2016 and had quantified therein the same on that basis to a sum of Rs. 19,28,802/-. The said letter of the petitioner had been received by the respondent after the respondent had submitted its Statement of Claim to the SFCA and after the Ld. Sole Arbitrator had entered upon his reference. In the said letter dated 29/12/2016, petitioner had not indicated as to whether the said amount mentioned therein qua outstanding royalty amount is merely the royalty amount or it includes the tax amount as well. As such the respondent made its claims qua the same in two parts. It was further averred that arbitral award passed by Ld. Sole Arbitrator is neither erroneous nor improper and that the same had been reached fairly upon having followed due procedure and after having given adequate opportunities to the parties to place their grievances during the arbitral proceedings and same had been awarded after having well considered the facts and circumstances ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 16 of 43 of the case. It was further averred that Section 34 of the Act further more restricts the scope of judicial intervention by Courts and sub Sections 2 and 2A there under provide a list of circumstances upon which an arbitral award can be set aside by the Court. It was prayed for dismissal of the petition.
12. Ld. Counsel for petitioner argued in terms of the grounds of the petition. It was also argued the that the award was without jurisdiction since there was no concluded and enforceable Contract as the Minutes of Meeting (MoM) dated 22/06/2011 at the highest was merely an Agreement to enter into an Agreement and does not create a binding obligation. Reliance was placed upon the case of Speech And Software Technologies (India) Private Limited vs NEOS Interactive Limited, (2009) 1 SCC
475. It was also argued that there was no arbitration agreement between the parties in terms of Section 7 of the Act as Minutes of Meeting (MoM) dated 22/06/2011 did not have arbitration clause and even had no reference to original agreement dated 08/07/2005 whereas the MoA in survival clause, 2nd part of Clause 11.3 does not provide for arbitration clause as one of the Clauses which remains unaffected upon the expiry of MoA. Reliance was placed upon the case of INOX Wind Limited vs Thermocables Limited, (2018) 2 SCC 519. Also was argued that as per Rule 18 of the SFCA Rules, 2003, five names were suggested for Sole Arbitrator by SFCA vide communication dated 22/02/2017 and petitioner vide letter dated 06/03/2017 in response to said letter suggested the name of Sh. S.K Sinha, Former ED (Law), HUDCO. However, SFCA appointed present Sole Arbitrator, who was not even in those five names suggested ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 17 of 43 as Arbitrators. It was argued that constitution of Arbitral Tribunal was in the teeth of Section 34(2)(a) (iii) of the Act. It was further argued that there was no evidence of turnover adduced by the respondent in the Statement of Claim, yet relying upon the letter dated 29/12/2016 of petitioner, the Arbitral Tribunal passed the award, whereas said letter was inadmissible in law as it was in effect the "without prejudice" letter. Reliance was placed upon the cases of (i) Peacock Plywood (P) Ltd. Vs Oriential Insurance Co. Ltd., (2006) 12 SCC 673 and (ii) Chairman And MD, NTPC Ltd. Vs Reshmi Constructions, Builders & Contractors, (2004) 2 SCC 663. Also was argued that the Award of Interest was in teeth of Section 31 (3) of the Act in as much as the Award of Interest is de hors any reasons and therefore vitiated. It was argued that first notice was issued only on 11/05/2015, which clearly waived for pre-reference interest and thus the period of interest can only start running from 11/05/2015. It was argued that the impugned arbitral award is liable to be set aside.
13. Ld. Counsel for respondent argued that seeking re- examination and re-evaluating of the merits of the award is not allowed. It was also argued that requisite prior notice under Section 34 (5) of the Act was not issued by petitioner before filing the petition. Also was argued that Clause 11.1 of MoA provided that the term of the contract may be renewed and extended beyond the initial term of six years of the contract, upon mutual consent and that the parties may review the conditions of the said MoA one year before the expiry of said MoA and enter into fresh agreement, if they mutually agree. Also ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 18 of 43 was argued that Clause 11.3 of MoA also stated that the expiry of said MoA shall not affect the rights, obligations and liabilities of the parties as described in Article 4 (Ownership), 5 (Confidentiality of Technical Information) and 6.2 (Royalty) of MoA. However, the parties were free to review articles one year before the expiry of the MoA and enter into a fresh agreement, if they mutually agree. It was also argued that the Minutes of Meeting (MoM) dated 22/06/2011 bearing subject "Renewal of Licence for manufacturing Cationic Bitumen Emulsion by KCM Petrotech Hyderabad" records the signatures and consent of the parties of the extension of the MoA for a further period of five years on the same terms and conditions but with revised royalty rate from earlier 1.5% of ex-factory basic price to the revised rate @ 2% of ex-factory basic price plus applicable service tax. It was argued that the nature of Clause 11.1 has been misrepresented, alleging it has nothing to do with the renewal of the contract. The contract is a long term contract and due to passage of time the conditions sometimes have to be reconsidered to make the contract equitable due to rise in cost, inflation etc. It was argued that MoM clearly records that both the parties agree to the renewal of the MoA for the further period of five years , more so on the insistence of the petitioner. It was argued that therefore, that amounts as sufficient consent on the part of the petitioner for renewal of the MoA and accordingly the MoA was further renewed for five years and both the parties acted in furtherance of the said renewal. Also was argued that the presence of the word "may" was in the clause, which indicated renewal of term of the contract was on discretion of the parties and the parties exercised the discretion to renew the MoA. Also ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 19 of 43 was argued that by conduct the petitioner expressed its unconditional consent for the agreement as the petitioner continued to carry out its obligations as per the MoA from 08/07/2011 and made the payment of the royalty for the first six months of FY 2011-12 at the said new rate as well. Also was argued that for the period upto 31/03/2013 the petitioner had submitted the six monthly royalty statements to the respondent as it had done so during the initial period of six years as per the obligations of petitioner under Clause 6.2(ii) of the MoA. Also was argued that in paragraph 3 of the letter dated 16/11/2005 to respondent, petitioner admitted the MoA had been extended from 08/07/2011 to 07/07/2016. Reliance was placed upon the case of Bharat Petroleum Corporation Ltd. vs The Great Eastern Shipping Co. Ltd., MANU/SC/8036/2007. It was argued that even if there was no consensus about arbitration clause in the renewal agreement, a legal relationship was established between the parties in the MoA that was signed by both the parties which is a legally binding agreement dictating their legal relationship. It was argued that by virtue of the conduct of petitioner, petitioner should be estopped from negating the validity of the Minutes of Meeting (MoM) dated 22/06/2011. Reliance was placed upon the cases of (i) Ashapura Mine-Chem Ltd. vs Gujarat Mineral Development Corporation, MANU/SC/ 0467/2015 and (ii) Reva Electric Car Company P. Ltd. vs Green Mobil, MANU/SC/1396/2011.
14. An Arbitral Award can be set aside on the grounds set out in Sections 34(2)(a), (b) and (2A) of the Act in view of Section 5 of the Act.
ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 20 of 4315. Section 34 (1), (2) and (2A) of The Arbitration and Conciliation Act, 1996 read as under:
"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 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;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 21 of 43
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-- (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.-- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
16. Normally, the general principles are that Arbitrator is a Judge of the choice of the parties and his decision, unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even by the Court as a Court of law could come to a different conclusion on the same facts.
The Court cannot reappraise the evidence and it is not open to the Court to sit in appeal over the conclusion of the Arbitrator. It is not open to the Court to set aside a finding of fact arrived at by the Arbitrator and only grounds on which the award can be set aside are those mentioned in the Arbitration Act. Where the Arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the Court in exercise of the power vested in it.
ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 22 of 43Where the Arbitrator is a qualified technical person and expert, who is competent to make assessment by taking into consideration the technical aspects of the matter, the Court would generally not interfere with the award passed by the Arbitrator.
17. Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
18. Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of the Act, a decision which is perverse 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. A finding based on the 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 characterized as perverse. It is held that a finding based on no evidence at all or an award which ignores vital ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 23 of 43 evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
19. In the case of M/s Arosan Enterprises vs Union of India & Anr., MANU/SC/0595/1999, it was inter alia held that reappraisal of evidence by the Court is not permissible in the proceeding under the Arbitration Act. In the event of there being no reason in the award, question of interference of the court would not arise at all. In the event, however there are reasons, the interference would still be not available within the jurisdiction of the Court unless of course, there exist a total perversity in the award or the judgment is based on wrong proposition of law. In the event, however, two views are possible on a question of law as well, the Court would not be justified in interfering with the award. Also was held that the Court as matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. If the view of arbitrator is a possible view the award or the reasoning contained therein cannot be examined. The decisions in the cases of State of Rajasthan vs Puri Construction Co. Ltd, MANU/SC/0865/1994 and Sudersan Trading Company vs Government of Kerala & Anr., MANU/SC/0361/1989 were relied. Also was held therein that where an Aribitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside.
ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 24 of 4320. Reasonableness of reasons given by an Arbitrator in making his award cannot be challenged (Simplex Concrete Piles (India) Limited vs NPCC Limited (2000) 54 DRJ 4971). Court cannot re-appreciate evidence produced before the Arbitrator and come to a different conclusion (Army Welfare Housing Organization vs Gautam Constructions and Fisheries Limited AIR 1998 SC 3244). While considering challenge to arbitral award, the Court does not sit in appeal over the findings and decision of the arbitrator (Steel Authority of India Ltd. vs Gupta Brother Steel Tubes Ltd.(2009) 10 SCC 63).
21. In the case of G. Ramchandra Reddy v. Union of India, (2009) 6 SCC 414, Apex court asserted that Courts should not normally interfere with the award of an Arbitrator, unless there was a gross error apparent on the face of the record.
22. It is the fact of the matter that after expiry of initial six years of MoA, the present petitioner continued use of technology formulation provided by respondent, which was developed by respondent alongwith related know-how and as elicited in detail in para 7 herein above, the royalty amounts were further paid by petitioner to the respondent well after expiry of initial term six years of MoA.
23. The text of letter dated 05/01/2011 of petitioner to respondent makes it vivid, loud and clear that it was a request for renewal of agreement viz. MoA and it is incorporated there the wish of petitioner to get extended MoA for another five years for which they sought confirmation of respondent as well as their ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 25 of 43 acceptance to go ahead and complete the formalities. Aforesaid letter dated 05/01/2011 laid the foundation for the deliberations, discussions concluding with the Minutes of Meeting dated 22/06/2011 having the subject of renewal of licence for manufacturing Cationic Bitumen Emulsion by petitioner which was expiring on 07/07/2011 and the agreed terms have been made vivid in preceding paras. Said Minutes of Meeting dated 22/06/2011 accordingly records the new rate of royalty of 2% of Ex-Factory Basic Price + Service-tax as applicable from time to time and to remain valid for five years i.e., upto 07.07.2016. If these Minutes of Meeting dated 22/06/2011 are not considered along with MoA and considered in isolation then one cannot reach any logical conclusion with respect to any claim of claimant/respondent. Further more, Minutes of Meeting dated 22/06/2011 were only brought into existence pursuant to meeting held between the parties on the request for renewal of agreement made vide letter dated 05/01/2011 of petitioner to respondent elicited in detail herein above. Term 11.1 of MoA records that MoA shall remain valid for initial period of six years and conditions were subject to review one year before expiry of agreement. The entire tone and tenor of MoA reflects clearly of the intent of parties for bringing into existence long term relationship. As elicited herein above, the term 11.3 of MoA records that even the expiry of the agreement does not affect the rights, obligations and liabilities of the parties inter alia including for Article 6.2 (Royalty) of the MoA. It also records that parties may review Article 4.0, 5.0 and 6.2 of the agreement one year before expiry of agreement and enter into fresh agreement if they so mutually agreed. The MoA has no ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 26 of 43 prohibitory clause for the parties to the agreement making condition precedent of entering fresh agreement after expiry of initial period of six years of MoA, for continuing the relationship between the parties to the agreement and renewal/extension of the agreement.
24. Ld. Sole Arbitrator dealt with the facet of the matter succinctly in the impugned arbitral award. He was of the opinion that the essence and the spirit with which the process of renewal was started and MoM dated 22/06/2011 was signed in whatever form the parties chose makes it clear that in the given circumstances, in absence of any other change in the terms and conditions of MoA, which permits use of same Technology/knowhow and grant of licence thereof for extended period of five years after 07/07/2011, natural conclusion that can be drawn by any prudent person is that other terms and conditions that were to govern their legal and contractual relation post 07/07/2011 would remain unchanged. Also Ld. Sole Arbitrator appreciated the evidence in the form of letters of petitioner placed before him whereby the petitioner itself related on other terms and conditions of MoA and conducted accordingly well beyond the initial period of six years of MoA. Ld. Sole Arbitrator also appreciated the fact that the petitioner furnished the royalty statements for three successive six monthly periods of 01/10/2011 to 31/03/2012, 01/04/2012 to 30/09/2012 and 01/10/2012 to 31/03/2013 in addition to the part period of 08/07/2011 to 30/09/2011 after expiry of initial period of MoA. Ld. Sole Arbitrator also elucidated as follows:-
"Therefore, in the given facts, I am not in a position to accept that post 07/07/2011 there was no agreement whatsoever, ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 27 of 43 between the parties (other than rate of royalty) as to how to govern their legal relationship and conduct of performance under the second leg of agreement. I am of the firm view that all terms and conditions of the agreement (other than rate of royalty) post 07.07.2011, in the given situation remained the unaltered as was contained in the MOA dated 08/07/2005. This also includes Arbitration Clause under article-12.0 of the MOA as well. It would be incongruous and incomprehensible to accept that the Respondent continued to use and apply the Technology/Know-how owned by the Claimant in the absence of any agreement other than the rate of royalty. If this argument of the Respondent is accepted then it would lead to a conclusion that during the extended period there was no agreement on use of the Technology/Know-how owned by the Claimant, to maintain confidentiality thereof and when there is any dispute or difference between the Parties, the aggrieved party has to move a Civil Court and not to Arbitral Institution named in the MOA for resolution of such dispute. Had it been so, then Respondent was under no obligation to provide royalty statement, nor to purchase Bitumen from the Claimant which they did."
25. True that Supreme Court in the case of Speech And Software Technologies (India) Private Limited vs NEOS Interactive Limited, (2009) 1 SCC 475 inter alia held that an agreement to enter into an agreement is not enforceable nor does it confer any right any right upon the parties.
26. Supreme Court in the case of Inox Wind Ltd. Vs Thermocables Ltd, (2018) 2 SCC 519 inter alia held that:-
"The scope and intent of Section 7(5) of the Act on the issue of incorporation of an arbitration clause by reference, has been summarized as follows in M.R Engineering & Contractors (P) Ltd. vs. Som Datt Builders Ltd., (2009) 7 SCC 696:
(i) An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled: (1) the contract should contain a clear reference to the documents containing arbitration clause, (2) the reference to the other document should clearly indicate an intention to incorporate the arbitration clause into the contract, ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 28 of 43 (3) the arbitration clause should be appropriate, that is capable of application in respect of disputes under the contract and should not be repugnant to any term of the contract.
(ii) When the parties enter into a contract, making a general reference to another contract, such general reference would not have the effect of incorporating the arbitration clause from the referred document into the contract between the parties. The arbitration clause from another contract can be incorporated into the contract (where such reference is made), only by a specific reference to arbitration clause.
(iii) Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also.
(iv) Where the contract provides that the standard form of terms and conditions of an independent trade professional institution (as for example the standard terms and conditions of a trade association or architects association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference.
Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions.
(v) Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their contract (as for example the general conditions of contract of the Government where the Government is a party), the arbitration clause forming part of such general conditions of contract will apply to the contract between the parties."
Also was held therein that an arbitration clause in an earlier contract cannot be incorporated by a general reference. The ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 29 of 43 exception to the rule is a reference to a standard form of contract by a trade association or a professional institution in which case a general reference would be sufficient for incorporation of an arbitration clause.
27. In the fact of the matter, before expiry of the initial six years period of term of MoA, vide above referred letter dated 05/01/2011, petitioner had requested for extension of agreement for another five years and deliberations, discussions ended with Minutes of Meeting dated 22/06/2011, all afore elicited, before expiry of the initial six years period of MoA, whereby the purpose was to renew the MoA and the varied terms were made vivid in MoM dated 22/06/2011 and it was only with respect to the rate of royalty and nothing else and the request of petitioner for extension of agreement period of five years was accepted. Hyper technical approach had been adopted by the petitioner to shirk from its responsibility of agreed terms to provide to respondent royalty statements after 31/03/2013 as well as payments of royalty. After compliance of all terms of MoA and MoM for considerable period after six years initial terms of MoA, interpretation and view of Ld Sole Arbitrator qua applicability of all terms of MoA excepting the varied term of rate of royalty agreed vide MoM dated 22/06/2011, is plausible, based on evidence led by parties and cannot be termed as perverse or suffering from patent illegality.
28. Rule 18 of the SCFA Rules, 2003 has been reproduced in the petition and it incorporates that the Secretary shall notify in writing to the parties of the dispute five names from the panel ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 30 of 43 and ask for nomination of one common name as Sole Arbitrator within thirty days and when parties fail to nominate a common name from the panel within the specified period from the date of receipt of the communication from the Secretary, then Sole Arbitrator from the panel will be appointed by the Secretary in consultation with Vice President. True that five names from the panel were communicated to the parties by SCFA. It is also true that petitioner had suggested the name of Sh. S.K Sinha, Former ED (Law), HUDCO as Sole Arbitrator vide letter dated 22/02/2017. There is no material on record that the respondent had also asked for nomination of Sh. S.K Sinha, Former ED (Law), HUDCO as Sole Arbitrator. So it cannot be said that the parties to the lis nominated the common name from five names suggested from the panel of arbitrators by SCFA. In the fact of the matter, there was nothing wrong in appointment of Sh. A.K Shahi as Ld. Sole Arbitrator accordingly as parties failed to nominate a common name from five names out of the panel suggested by SCFA. No plea was raised by the petitioner before Ld. Sole Arbitrator, objecting of conducting of arbitral proceedings by him. Only plea raised before Arbitral Tribunal was with respect to existence of the arbitration clause or applicability of MoA. In this fact of the matter, the plea of petitioner raised for the constitution of Arbitral Tribunal in the teeth of Section 34(2)(a)(iii) of the Act does not hold water and is without substance.
29. Respondent cried hoarse, requesting vide various letters sent to petitioner to provide the royalty statements agreed upon in terms of MoA and MoM. On one hand petitioner did not adhere ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 31 of 43 to the terms of MoA for providing the royalty statements after 31/03/2013 to respondent for extended term, as per MoM and on the other hand, the petitioner is crying loud that this is a case of no evidence. Petitioner also claimed letter dated 29/12/2016 addressed by it to respondent to be "without prejudice letter" as was argued by Ld. Counsel for petitioner. Following is the text of aforesaid letter dated 29/12/2016 sent by petitioner to respondent:-
"Dt. 29.12.2016 To Sri G.K Acharya Ji, The General Manager, (Technology Promotion) M/s Indian Oil Corporation Limited, R & D Centre, Sector, 13, Faridabad--121007 Respected Sir, Sub: Pending Royalty Issue with IOCL R & D, Sector 13, Faridabad--reg Ref: Our letters dt. 20.06.2013, 09.05.2014, 09.10.2015 & 08.06.2016 We have received letter from M/sJuris Corp, Advocates & Solicitors, H-17, Lower Ground Floor, Kailash Colony, New Delhi-110017 on 20th inst.
You are aware that we are corresponding with your goodselves for resolving the payment of Royalty vide Our letters dt. 20.06.2013, 09.05.2014, 09.10.2015 & 08.06.2016 and we have not received any communication in this regard to move further.
In this connection, we would also like to bring to your kind notice that in all our correspondence, we have explained our problems only and nowhere we mentioned that we will not pay the Royalty amount. All the years, we have been requesting your goodselves to consider and reconsider for downward revision of Royalty from 2% on basic to 0.5% OR Rs.200/- per MT for enabling us to sustain in the competition market.
Keeping in view of the above and long term business relation with your esteemed organisation, you are requested to take needful action in our favour, as paying of High Royalty is becoming difficult to sustain in the market as our competitors are offering huge discounts.ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 32 of 43
As already informed, we are ready to pay pending Royalty @ 0.5% amounting to Rs.19,28,802/-(Rupees Nineteen Lakhs Twenty Eight Thousand Eight Hundred and Two only) up to 31.03.2016.
Please confirm for enabling us to make payment.
Thanking You, For KCM Petrotech Sd/-
Managing parter Cc to M/s Juris Corp, Advocates & Solicitors, H-17, Lower Ground Floor, Kailash Colony, New Delhi-110 017"
30. Clause 6.2(v) of MoA inter alia provided of duty of petitioner to maintain true and proper accounts with respect to the production and sale of product in question, and the sale price and/or royalty(ies) and such accounts were to be open for scrutiny by any authorized representatives or auditors appointed by respondent. Such duty cast upon petitioner was not discharged by petitioner in the extended period, as per MoM after 31/03/2013, as the royalty statements as well as royalty payments were not given to respondent by petitioner despite various letters of demand of respondent. Petitioner was pestering with his request for reduction of Royalty from 2% on basic to 0.5% OR Rs.200/- per MT under the pretext to sustain in the competition market and did not provide to the respondent the agreed upon royalty statements for period after 31/03/2013 and outstanding royalty payments. It had been own case of petitioner vide aforesaid letter dated 29/12/2016 for willing to pay Royalty @ 0.5% amounting to Rs.19,28,802/- up to 31/03/2016. The said facts laid foundation for calculation of Royalty payable by ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 33 of 43 petitioner to respondent, as elicited in detail in the impugned arbitral award. The language of the aforesaid letter dated 29/12/2016, elicited herein above, brings into fore the circumstances in which the words are used but the document does not attract without prejudice privilege as the said letter simply proceeds further with the pestering of petitioner of earlier put forth request for re-consideration downward revision of Royalty from 2% on basic to 0.5% of basic or Rs.200/- per MT and not a genuine attempt in the negotiations to settle the dispute. So in this fact of the matter, the pronouncement in the case of Peacock Plywood (P) Ltd. Vs Oriential Insurance Co. Ltd., (2006) 12 SCC 673 would be of no help to the petitioner to claim the letter dated 29/12/2016 to be without prejudice letter.
31. In the case of Chairman And MD, NTPC Ltd. Vs Reshmi Constructions, Builders & Contractors, (2004) 2 SCC 663, before Supreme Court, the issue required to be determined was whether by reason of the act of the parties the old contract was substituted by a new contract. The facts and circumstances in the present case are different and distinguishable from the facts and circumstances of the case of Chairman And MD, NTPC Ltd. Vs Reshmi Constructions, Builders & Contractors (supra) and said case accordingly is of no help to the petitioner for setting aside of the impugned arbitral award. In the case in hand, well before expiry of MoA, the request letter dated 05/01/2011 for renewal of MoA seeking extending the agreement period for five years was sent by petitioner to respondent which was followed by deliberations, discussions culminating into MoM dated 22/06/2011, elicited herein above. It is not a case of substitution ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 34 of 43 of new contract all together. Only the rate of royalty was varied and MoM dated 22/06/2011 does not record the variation of any other condition of MoA dated 08/07/2005 for further period of five years later to expiry of six years initial period of MoA.
32. Supreme Court in the case of Bharat Petroleum Corporation Ltd. vs The Great Eastern Shipping Co. Ltd., MANU/SC/8036/2007 inter alia held that the arbitration agreement does not perish with the expiry of the main agreement in all cases. In appropriate cases offeree's silence, coupled with his conduct forming a positive act, may constitute an acceptance
- an agreement sub-silentio. Therefore, the terms of a contract between the parties can be proved not only by their words but also by their conduct.
33. Supreme Court in the case of Ashapura Mine-Chem Ltd. vs Gujarat Mineral Development Corporation, MANU/SC/ 0467/2015 relied upon several judgments including Reva Electric Car Company P. Ltd. vs Green Mobil (supra), Today Homes and Infrastructure Pvt. Ltd. V. Ludhiana Improvement Trust & Anr., MANU/SC/0513/2013 and Enercon (India) Ltd. & Ors. v Enercon GMBH & Anr., MANU/SC/0102/2014, held that in addition to the fundamental nature of the separability presumption, the dispute between the parties relates to the relationship created by way of the MoU and so the arbitration agreement contained therein would bind the parties.
34. Supreme Court in the case of Reva Electric Car Company P. Ltd. vs Green Mobil (supra) inter alia held that it was for the arbitral tribunal to decide as to whether claims made are within ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 35 of 43 the arbitration clause and that the arbitral tribunal would also have to decide the merits of the claim put forward by the respective parties. Thus, it negates the contention of the Petitioner that the dispute between the parties is beyond the purview of the said arbitration clause.
35. Sections 28(3) and 31 (7) of The Act read as follows:
"28. Rules applicable to substance of dispute.-- ........................................................................... (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.
..........................................................................
31. Form and contents of arbitral award.--
............................................................................ (7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of the award to the date of payment.
Explanation.- The expression "current rate of interest" shall have the same meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978)."
36. In the case of Ashi Limited vs Union of India, MANU/DE/1094/2020, Hon'ble Ms. Justice Jyoti Singh of Delhi High Court had also appreciated law laid by Supreme Court in the case of Sree Kamatchi Amman Constructions vs The Divisional Railway Manager (Works) Palghat & Ors., MANU/SC/0625/2010 and inter alia held as follows:
"54. In so far as the grant of interest by an Arbitrator is concerned, the law is no longer res integra, Section 31(7)(a) of ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 36 of 43 the Act clearly stipulates that unless otherwise agreed by the parties, where the Award is for payment of money, the Tribunal may grant such rate as it deems reasonable, on the whole or any part of the money and for the whole or any part of the period between the date of cause of action and the date of the Award. In the case of Jaiprakash Associates Ltd. (Jal) v. Tehri Hydro Development Corporation India Ltd., MANU/SC/0157/2019, the Supreme Court after noticing the provisions of the 1996 Act and various judgments on the issue of interest, more particularly, the recent judgment in the case of Reliance Cellulose Products Ltd. v. ONGC Ltd., MANU/SC/0777/2018: (2018) 9 SCC 266, summed up the law on interest as under:
"13. Insofar as power of the arbitral tribunal in granting pre- preference and/or pendente lite interest is concerned, the principles which can be deducted from the various judgments are summed up below:
(a) A Constitution Bench judgment of this Court in the case of Secretary, Irrigation Department, Government of Orissa vs G.C. Roy exhaustively dealt with this very issue, namely, power of the arbitral tribunal to grant pre-
reference and pendente lite interest. The Constitution Bench, of course, construed the provision of the 1940 Act which Act was in vogue at that time. At the same time, the Constitution Bench also considered the principle for grant of interest applying the common law principles. It held that under the general law, the arbitrator is empowered to award interest for the pre- reference, pendente lite or post award period. This proposition was culled out with the following reasoning:
"43 The question still remains whether arbitrator has the power to award interest pendente lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge:
(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 37 of 43 arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.
(ii) An arbitrator is an alternative form (sic forum) for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.
(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of Arbitration Act illustrate this point).
All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement.
(iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas [Seth Thawardas Pherumal v. Union of India, MANU/SC/0070/1955 : (1955) 2 SCR 48: AIR 1955 SC 468] has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena case [MANU/SC/0004/1987 : (1988) 1 SCC 418: (1988) 1 SCR 253] almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law.
(v) Interest pendente lite is not a matter of ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 38 of 43 substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred."
It is clear from the above that the Court decided to fall back on general principle that a person who is deprived of the use of money to which he is legitimately entitled to, has a right to be compensated for the deprivation and, therefore, such compensation may be called interest compensation or damages.
(b) As a sequitur, the arbitrator would be within his jurisdiction to award pre-reference or pendente lite interest even if agreement between the parties was silent as to whether interest is to be awarded or not.
(c) Conversely, if the agreement between the parties specifically prohibits grant of interest, the arbitrator cannot award pendente lite interest in such cases. This proposition is predicated on the principles that an arbitrator is the creature of an agreement and he is supposed to act and make his award in accordance with the general law of the land and the agreement. This position was made amply clear in G.C Roy case in the discussion thereafter:
"44. Having regard to the above consideration, we think that the following is the correct principle which should be followed in this behalf:
Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes or refer the dispute as to interest as such to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view."
(d) Insofar as 1940 Act is concerned, it was silent about the jurisdiction of the arbitrator in awarding pendente lite interest. However, there is a significant departure on this aspect insofar as 1996 Act is concerned. This distinction ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 39 of 43 has been spelt out in Sayeed Ahmed case in the following manner:
"Re: Interest from the date of cause of action to date of award
7. The issue regarding interest as noticed above revolves around Clause G1.09 of the Technical Provisions forming part of the contract extracted below:
"G. 1.09. No claim for interest or damages will be entertained by the Government with respect to any money or balance which may be lying with the Government or any become due owing to any dispute, difference or misunderstanding between the Engineer- in-Charge on the one hand and the contractor on the other hand or with respect to any delay on the part of the Engineer-in-Charge in making periodical or final payment or any other respect whatsoever."
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14. The decisions of this Court with reference to the awards under the old Arbitration Act making a distinction between the pre-reference period and pendente lite period and the observation therein that the arbitrator has the discretion to award interest during pendente lite period in spite of any bar against interest contained in the contract between the parties are not applicable to arbitrations governed by the Arbitration and Conciliation Act, 1996."
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56. In the case of Union of India v. Bright Power Projects (India) (P) Ltd., MANU/SC/0712/2015 : (2015) 9 SCC 695, Supreme Court held that when agreement between the parties bars interest on the amounts from cause of action to the date of the Award, the Arbitrator is bound by it and cannot award interest as Section 31 (7)(a) clearly begins with the words 'unless otherwise agreed by parties'.
57. In State of Haryana v. S.L Arora & Co., MANU/SC/0131/2010 : (2010) 3 SCC 690, Supreme Court has held that it is not open to the courts to interfere in the discretion exercised by an Arbitrator in granting the rate of interest. This is purely the domain, power and prerogative of the Arbitrator. Relevant part of the judgment reads as under:-
"23. The difference between clauses (a) and (b) of Section 31(7) of the Act may conveniently be noted at this stage.ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 40 of 43
They are:
(i) Clause (a) relates to pre-award period and clause
(b) relates to post-award period. The contract binds and prevails in regard to interest during the pre-award period. The contract has no application in regard to interest during the post-award period.
(ii) Clause (a) gives discretion to the Arbitral Tribunal in regard to the rate, the period, the quantum (principal which is to be subjected to interest) when awarding interest. But such discretion is always subject to the contract between the parties. Clause (b) also gives discretion to the Arbitral Tribunal to award interest for the post-award period but that discretion is not subject to any contract; and if that discretion is not exercised by the Arbitral Tribunal, then the statute steps in and mandates payment of interest, at the specified rate of 18% per annum for the post-award period.
(iii) While clause (a) gives the parties an option to contract out of interest, no such option is available in regard to the post-award period.
In a nutshell, in regard to pre-award period, interest has to be awarded as specified in the contract and in the absence of contract, as per discretion of the Arbitral Tribunal. On the other hand, in regard to the post-award period, interest is payable as per the discretion of the Arbitral Tribunal and in the absence of exercise of such discretion, at a mandatory statutory rate of 18% per annum."
37. MoA dated 08/07/2005 and MoM dated 22/06/2011 contained no clauses having any express bar against claim for interest or award of interest. Per contra, Clause 6.2 (v) of MoA inter alia embodied the entitlement of respondent for interest from petitioner on under payments of royalty on detection in scrutiny, at the then current rate of interest applied by the State Bank of India on unsecured overdraft. This is a case of non- payment of Royalty by petitioner to respondent and not a case of under payment of royalty, on detection in scrutiny by auditors or authorized representatives. Also petitioner has not placed on ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 41 of 43 record any material reflecting that the interest awarded for pre- award period @10% was excessive of the then current rate of interest applied by the State Bank of India on unsecured overdraft or it was in any manner exhorbitant. In view of law laid by Supreme Court in the cases including Jaiprakash Associates Ltd. (supra), Reliance Cellulose Products Ltd. (supra), Sree Kamatchi Amman Constructions (supra), Union of India vs Bright Power Projects (India) (P) Ltd. (supra), State of Haryana v. S.L Arora & Co. (supra) and the law laid in the case of Ashi Limited vs Union of India (supra) by Delhi High Court, since there was no express bar for grant of interest by Ld. Sole Arbitrator, the impugned arbitral award does not suffer from any illegality or perversity, as the respondent was deprived of the use of money to which it was legitimately entitled and has a right to be compensated for the deprivation, on the premise of which interest was awarded in the impugned arbitral award.
38. This Court cannot substitute own evaluation of conclusion of fact or even law to come to the conclusion other than that of the Arbitrator. Sufficient cogent, sound reasons have been assigned by the Ld. Sole Arbitrator in reaching his conclusion on due appreciation of evidence and no misconduct is apparent on the face of the record. This Court cannot re-appraise the evidence and it is not open to this Court to sit in the appeal over the conclusion/findings of facts arrived at by Ld. Sole Arbitrator. The award is not against any public policy nor against the terms of contract of the parties nor is perverse nor any patent illegality is apparent on the face of award. None of the grounds raised by the petitioner attract Section 34 of the Act. No ground for ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 42 of 43 interference is made out.
39. For the foregoing reasons, the petition is hereby dismissed.
40. The parties are left to bear their own costs.
41. File be consigned to record room.
ANNOUNCED IN (GURVINDER PAL SINGH) OPEN COURT District Judge (Commercial Court)-02
on 05th April, 2021. Patiala House Court, New Delhi.
(Deepika) ARBTN No. 5300/2018 KCM Petrotech vs. Indian Oil Corporation Ltd. Page 43 of 43