Delhi High Court
Rathi Ispat Ltd. vs Goyal Mg Gases Pvt. Ltd. on 3 January, 2008
Author: Pradeep Nandrajog
Bench: Pradeep Nandrajog
JUDGMENT Pradeep Nandrajog, J.
1. Vide OMP No. 366/03 Rathi Ispat Ltd. (hereinafter referred to as RIL) has filed objections under Section 34 of the Arbitration and Conciliation Act 1996 (hereinafter referred to as the Act) to the award dated 16.6.2003 published by Hon'ble Justice S.C.Aggarwal (Retd.) a former Judge of the Hon'ble Supreme Court of India. Vide OMP No. 325/03, invoking Section 9 of the Act, Goyal MG Gases Pvt. Ltd. (hereinafter referred to as Goyal Gases) has sought interim measures to secure the sum awarded to it under the award.
2. Vide order dated 18.8.2003 passed in OMP No. 325/03, RIL was restrained from transferring, assigning or creating third party interest in respect of their factory plant or machinery at Ispat Nagar SS G.T. Road Ghaziabad U.P.
3. Vide order dated 20.1.2000, the learned arbitrator had framed 6 issues as under:
1. Whether the respondent has committed breach of terms of Agreement dated April 26, 1995 by committing default in performing its part of the obligations as claimed by the claimant?
2. Whether the claimant has committed breach of terms of Agreement dated April 26, 1995 by committing default in performing its part of the obligations as asserted by the respondent?
3. Whether the rival parties new in advance as to the consequences of non- supply/non-lifting of gases as per the terms of Agreement dated April 26, 1995?
4. Whether either of the parties is entitled to compensation/payment or damages on account of breach of contract by the other party and, if so, what is the amount to which it is so entitled?
5. Whether interest is payable on the amount of compensation/payment or damages and, if so, at what rate?
6. Costs.
4. But the award has proceeded to consider the issues as projected by RIL during arguments before the learned arbitrator as under:
1. The plant set up by GMGGL does not have adequate capacity to meet the requirements of RIL as stipulated under the Agreement.
2. GMGGL have failed to provide adequate storage facility for gases in GMGGL premises as stipulated under the Agreement.
3. GMGGL have failed to provide facilities/arrangements for emanating gases from the source of generation to the user point.
4. GMGGL have failed to discharge their obligation under the Agreement in the matter of installation of equipment including measuring devices such as meters etc. in RIL premises.
5. GMGGL have failed to maintain uninterrupted supply of gases of required purity at the requisite pressure and flow resulting in RIL suffering heavy losses.
6. GMGGL have failed to supply MGO quantities of gases from December 31, 1995 and RIL are entitled to compensation for the said non-supply as per the terms of the Agreement.
5. Since virtually every finding by the learned arbitrator has been subjected to a challenge; the award being lengthy, one short of a century (99 pages); and the record being voluminous, over 1500 pages; I propose to deal with the objections by noting the issue dealt with by the learned arbitrator and the objection raised rather than the conventional approach of noting the rival version of the parties and how has the learned arbitrator dealt with the same followed by a narration of the objections to the awards; the arguments advanced and my findings thereon, as I am of the opinion that the conventional approach would render a prolix decision.
6. Goyal Gases was supplying, in cylinders, oxygen, nitrogen and argon gases in liquefied form to RIL. On 26.4.1995 the two entered into a written agreement for supply of oxygen and nitrogen gases in gaseous form through pipelines on the terms and conditions stipulated therein. The agreement had 5 Annexures pertaining to Technical Terms, Commercial Terms, P and I Diagram i.e. the network, Materials to be used and Requirement of Gases and Conditions of Supply.
7. The learned arbitrator has duly noted the terms and the reproduction thereof in the award at pages 1 to 9 of the award was accepted as correct by learned Counsel for the parties. Hence I reproduce the same as set out in the award:
The requirements of RIL are set out and it is indicated that it would need Oxygen gas of 99.5 per cent purity at peak flow rate of 5400 cm2/hr for 35 minutes at a pressure of 15 to 18 kg./cm2 maximum with a monthly requirement of 5,50,000 sm3. As regards Nitrogen gas, it was stipulated that it would be of 99.998 per cent purity with a peak flow rate of 3,000 sm3/hr for 30 minutes at a pressure of 15 kg./cm2 maximum with a monthly requirement of 1,40,000 sm3. GMGGL agreed to supply the above referred volume of gases conforming to the purity referred to above from their proposed plant at Ghaziabad latest by December 31, 1995 and till then the existing system of supply of liquid gases into storage tanks through transport tankers would continue [clause 1]. In the Technical Offer, it was further stipulated that GMGGL would produce gas exclusively for RIL's use and would supply Oxygen and Nitrogen gases through pipeline to RIL and that while laying of pipelines up to RIL's boundary wall would be carried out by GMGGL at their own cost, pipelines from RIL's boundary wall to user points shall be completed by RIL at their own cost. Once regular and interrupted supply of Oxygen and Nitrogen gases at required pressure, flow rate and purity commences through pipeline the VIEs (Vacuum Insulated Equipments) for storage of liquid gases installed at RIL premises shall be removed, but VIE for Argon shall remain installed at the existing facility/rental charges since Argon would continue to be supplied in liquid form only. Facility charges for VIEs for storage of liquid Oxygen and liquid Nitrogen shall not be payable from December 31, 1995 onwards till satisfactory pipeline supply is achieved [clause 2]. In Clause 3 of Technical Offer, it is provided that GMGGL shall keep adequate storage capacity of different gases at their premises after the proposed plant is commissioned and that Oxygen storage capacity would be 4 lakh litres in storage vessels and for Nitrogen it would be 10 lakh litres in storage vessels. In Clause 4 of the Technical Offer, it is stipulated that any statutory requirement to be met for the pipeline and Surge vessels within RIL's battery limits shall be responsibility of RIL but GMGGL would assist RIL at RIL's cost. In Clause 5 of the Technical Offer which relates to facilities/arrangements to be made by RIL, it is stipulated that GMGGL would provide technical details of necessary piping work including pipeline from RIL boundary to the user points, Surge vessels and allied equipment to be installed by RIL as per the list of items indicated in Annesure IV, maintenance responsibilities of the facility under RIL scope shall be that of GMGGL but operation of that facility shall be the responsibility of RIL. It was also prescribed therein that GMGGL shall maintain their plant with accessories and supporting systems installed at GMGGL premises and RIL premises to meet the buyers requirement based on flow rates and pressure requirements indicated in Annexure V and that till the system of supplier is successfully established, GMGGL would maintain their supplies through liquid tank without any facility and additional charges by December 31, 1995.
The Commercial Offer contained in Annexure II makes provision in Clause 2 for the price wherein it is prescribed that supplies of liquid gases being made now through VITTS (Vacuum Insulated Transport Tankers) will continue at the existing rates, terms and conditions mutually agreed between RIL and GMGGL till December 31, 1995. As regards supply of gases from the proposed plant or other sources latest with effect from December 31, 1995, the prices and terms as stipulated in Clause 2 (b) were Rs. 5.50 per sm3 for Oxygen for a quantity of 4 lakh sm3 per month. For Nitrogen, the rate was Rs. 7/- per sm3 for a quantity of 1 lakh sm3 per month. All Central and State Governments taxes and levies including excise duty and sales tax shall be charged extra as applicable from time to time. Clause 3 of the Commercial Offer makes provision for price escalation. In the said clause, it is provided that the prices stipulated in Clause 2 are based on power cost for UPSEB (U.P.State Electricity Board) power in Ghaziabad for February 1995 and that this February 1995 base price shall be calculated using various charges already declared by UPSEB for February 1995 as demand charge @ Rs. 134/- per KVA, energy charge @ Rs. 2.35 per unit (minus rebate as applicable for the particular voltage chosen by GMGGL for their Ghaziabad factory), electricity duty @ 6 paise per unit and fuel surcharge @ 27.028 paise per unit. It is stipulated that for every increase/decrease in the above mentioned power cost/unit by paisa one only or fraction thereof, the prices of Oxygen would increase/decrease by 1.50 paise per sm3 while price of Nitrogen would increase/decrease by 1 paise per sm3 only. In Clause 4 of the Commercial Offer, provision is made for payment terms and it is prescribed that bills shall be raised by GMGGL on weekly basis and shall be paid by RIL in 30 days failing which GMGGL shall have the right to claim interest at the rate of prevailing bank interest rate. Clause 5 of the Commercial Offer makes provision for measurement and billing system and stipulates that for supply of Oxygen and Nitrogen gases through pipelines from the proposed plant of GMGGL, the quantity of gases supplied in sm3 (standard cu.m) shall be measured by a flow meter and DT recorder calibrated to record in cubic meters at 27 degree Celsius with respect to one atmosphere and shall be installed at the premises of RIL at their cost. The flow meter and DT recorder shall be locked/calibrated and sealed jointly by RIL and GMGGL and this shall be installed at a rain protected area in a room jointly locked by RIL and GMGGL. The meter reading shall be taken once a week for the purpose of billing. GMGGL's representatives shall have free access to inspect the flow meter at any time. In the event of any maintenance/repair of flow meter rendering the same as unoperational, the the average specific consumption of gases i.e. gases consumed per tonne of steel produced by RIL in the preceding 7 working days multiplied by actual tonnage of steel produced by RIL in the preceding 7 working days multiplied by actual tonnage of steel produced during the period meter remained unoperational/defective shall be considered the basis for raising bills. Clause 6 makes provision for Minimum Guaranteed Off-take (MGO) and stipulates that RIL have guaranteed to take from the proposed plant of GMGGL to be started latest by December 31, 1995, 4 lakh sm3 of Oxygen gas and 1 lakh sm3 of Nitrogen gas on monthly basis keeping in view the flow rate mentioned in Annexure V into consideration and that in case the above quantities are not lifted in any single month, RIL would pay 100% value of the quantity short lifted at the prevailing contract rate. Similarly GMGGL agreed to compensate RIL if GMGGL is unable to supply guaranteed quantities mentioned above in any single month by paying to RIL 100% value of the short supplied quantities. Twenty per cent variation was, however, allowed in the MGO quantities mentioned above subject to force majeure clause in the Agreement. Clause 7 of Annexure II provided for an amendment of MGO during the period of the contract in the event of there being drastic change in the basic technology for production of steel or a change in product mix wherein no Oxygen or Nitrogen gases are required altogether and that no other reasons i.e. installation of plant using membrane air separation or any other technology by RIL and by other party shall be acceptable to GMGGL for the purpose of this clause. In case of anticipated long shut down of either GMGGL or RIL plant lasting more than one week, the other party shall be duly informed at least 15 days in advance and MGO for the affected month shall be suitably modified. Clause 8 of Annexure II enables RIL to obtain supplies from other sources and provides that for normal requirements of RIL beyond MGO quantities RIL shall limit their purchases form other sources up to limits of 1.5 lakhs cu.m. per month of Oxygen and 40000 cu.m. per month of Nitrogen during the tenure of the Agreement except when it is proved that GMGGL is unable to supply. RIL shall immediately stop buying unsupplied quantity by GMGGL from other sources as soon as GMGGL restores supplies and in case the requirement of RIL increases than that stated in Clause (1), GMGGL shall automatically supply the increased demand on the same terms and conditions of the Agreement. The Agreement was to be operative for a period of seven years from the date of commencement of the supplies from the proposed plant or December 31, 1995, whichever is earlier, and thereafter both the parties had an option to extend the period of Agreement further in multiples of five years with mutual consent.
In Annexure V to the Agreement, the requirement of Oxygen and Nitrogen gases of RIL for three convertors are set out. The requirement of Oxygen for 10 heats per day is stated as 25,500 m3 per day and the requirement of Nitrogen for 10 heats per day is stated as 6000 m3 per day. The approximate time for one heat was indicated as 175 minutes.
8. Undisputed facts were that as against 1.1.1996 being the target date for supply of oxygen and nitrogen through pipes the supply commenced only on 31.7.1996 and was discontinued on 12.10.1997.
9. As per Goyal Gases it's plant was ready for commissioning in December 1995 but RIL was not in a position to receive the gases as it had not installed the equipment to receive the gases at its premises and it was only by 31.7.1996 when RIL was in a state of readiness the supply commenced through pipe line. It justified discontinuing the supply of gases alleging huge outstanding.
10. RIL asserted that it was the duty of Goyal Gases to execute the concomitant works at its plant and that Goyal Gases failed to do so. RIL asserted that Goyal Gases had no business to set up a third rate plant of inadequate capacity. It asserted that as against a new plant to be set up, Goyal Gases imported a second hand plant and reassembled the same in India. It asserted that Goyal Gases did not supply requisite quantity of gas with requisite purity and stipulated pressure on many occasions and hence for the cumulative reasons was in default.
11. To appreciate the award and deal with the challenge thereto it would be useful to preface the discussion by noting the process of manufacture of oxygen and nitrogen gases. As explained by RW-2, Shri G.K.Balaya, the two gases are manufactured by the process of air separation. As is known to all, natural air comprises approximately 78% nitrogen and 20% oxygen. If natural air is compressed and cooled, liquification of gases takes place. Oxygen liquifies at -182.820C and nitrogen liquifies at -195.640C; the first fractional distillate yields liquified oxygen and the second distillate yields liquified nitrogen. With reference to Ex.RW-2/1 and Ex.RW-2/2 it may be noted that in the gaseous and the liquid form the two gases are separated in the rectification column and through pipeline are taken to the respective storage tanks. The metering system, distributive and storage system is noted by the learned arbitrator as under:
The metering system for measuring the supply of gas is set up in GMGGL premises at a point beyond the point where the pipelines of the gas coming out of the Compressor and the evaporated liquid gas coming out of the Evaporator are connected [Vol.IV-B, p.404]. The block diagram [Ex.RW.2/2] shows that Liquid Nitrogen and gaseous Nitrogen are also separated in the Rectification Column. Liquid Nitrogen is taken out and stored in liquid Nitrogen storage tank while gaseous Nitrogen is taken out separately and after passing through the Compressor it is stored in a Nitrogen pressure vessel in GMGGL premises. The liquid Nitrogen passes through an Evaporator and is connected to the pipeline of the gaseous Nitrogen coming from the Compressor so that evaporated liquid gas also goes to the Nitrogen gas storage tank from where it is taken by pipeline to RIL premises directly. Before leaving GMGGL premises the gas passes through the metering system installed in GMGGL premises. Since Nitrogen gas is stored in storage tank in GMGGL premises [Vol.IV-B, p.405] it is taken through the pipeline directly to the converters in RIL premises. In RIL premises there is a provision for storage of liquid Oxygen as well as liquid Nitrogen. Liquid Oxygen passes through the Evaporator in RIL premises and is connected to the pipeline containing Oxygen coming from the storage tank installed in RIL premises and it can be taken to the converters. Similarly liquid Nitrogen stored in RIL premises passes through the Evaporator and is connected with the pipeline containing Nitrogen gas coming from GMGGL premises and it is taken to the converters in RIL premises.
12. It may be noted that neither party questioned the correctness of afore-noted manufacturing process, transportation process and storage process. Pertaining to the issue whether the plant set up by Goyal Gases was of adequate capacity and whether Goyal Gases was obliged to set up a new plant, learned arbitrator has opined that the plant set up by Goyal Gases was of adequate capacity and that there was no contract between the parties requiring Goyal Gases to set up a new plant. In so holding, learned arbitrator has considered the specifications and other terms contained in Annexure I to V of the contract. The learned arbitrator has noted the ratio in which the two gases were manufactured in the gaseous form and the liquid form. Learned arbitrator has noted the respective storage capacity i.e. storage in the gaseous form and in the liquid form. Learned arbitrator has noted that if required, the gas in the liquid form could be reconverted into gaseous form.
13. Admittedly, the agreement between the parties does not require Goyal Gases to set up a new plant. Learned arbitrator has noted a pre- contractual letter dated 5.9.1994 Ex.A-48 wherein Goyal Gases had indicated to RIL as under:
Our plant being installed is the most modern state-of-the-art, having centrifugal compressors which operate absolutely trouble free for as long as 18000 hours at a stretch [3 years] as compared to the local reciprocating compressors used in smaller indigenous plants which require frequent maintenance and shut-down almost every month due to break down, once they are a few years old.
14. With reference to the expression 'modern state-of-the-art' used in Ex.A-48, learned arbitrator has opined that Goyal Gases only indicated that the plant proposed to be set up was a state-of-the-art plant and not a new plant. Learned arbitrator has noted that Goyal Gases had imported a second hand but working plant from Spain.
15. The challenge to the said part of the award is by re-urging the same factual matrix which was urged before the learned arbitrator. Indeed, RIL has not referred to any exhibit containing an assurance in writing from Goyal Gases that it was going to set up a new plant. Neither does the contract so stipulate.
16. The view taken by the arbitrator is not only reasonable but probably is the only view possible. The challenge fails.
17. Pertaining to the adequacy of the plant, the learned arbitrator has noted that pertaining to oxygen the guaranteed supply per month was 5,50,000 m3 with a peak flow rate of 5400 m3 per hour for 35 minutes and the guaranteed supply for nitrogen was 1,40,000 m3 with a peak flow rate of 300 m3 per hour for 30 minutes. With reference to Annexure V to the agreement, learned arbitrator noted that if the requisite number of heats per day stipulated therein was to be achieved then 25,500m3 of oxygen and 6,000m3 of nitrogen per day, both in gaseous form, would be needed.
18. Learned arbitrator has further noted that at 100% load factor and continuous operation i.e. 24 hours each day would yield 800m3 gaseous oxygen and 300m3 gaseous nitrogen per hour. Since inadequacy of the plant was sought to be urged with reference to supply of oxygen, learned arbitrator noted that at the rate of 800m3 per hour the plant could manufacture 19,200 m3 (800x24) oxygen in gaseous form per day. The learned arbitrator noted that during this period 1700 m3 of liquid oxygen and 1400 m3 of liquid nitrogen per hour would also be produced.
19. Noting that the requirement of 10 heats per day, with peak flow rate of 5400 m3 per hour for 35 minutes, required supply of 25,500 m3 oxygen in the gaseous form and that the plant could manufacture only 19,200 m3 of oxygen in the gaseous form, learned arbitrator has proceeded to consider how this contractual requirement could be met.
20. The first point noted by the learned arbitrator is that the agreement required a guaranteed supply by Goyal Gases of 5,50,000 m3 per month of gaseous oxygen and 1,40,000m3 per month of gaseous nitrogen which comes to 18,333 m3 gaseous oxygen per day and 4,667 m3 gaseous nitrogen per day on an average basis. The second point noted by the learned arbitrator is that the minimum guaranteed of take (MGO) by RIL required it to lift minimum 4,00,000 m3 of gaseous oxygen each month and 1,00,000 m3 of gaseous nitrogen per month which gave a daily average of 13,333 m3 of gaseous oxygen and 3,333 m3 of gaseous nitrogen per day. The third point noted by the learned arbitrator is that requirement of 25,500 m3 of gaseous oxygen in terms of Annexure-V cannot be regarded as the daily requirement of gaseous oxygen for each day of the month for the reason this would require RIL to consume 7,65,000 m3 of gaseous oxygen per month which would be in excess of the minimum guaranteed supply and the minimum guaranteed off-take. The fourth point noted by the learned arbitrator is that 3 storage tanks of 80,000 litre capacity can hold 2400m3 oxygen at a pressure of 30 kg/cm2. Lastly it has been noted that the plant is equipped with vaporizer to convert gas in liquid form to gaseous form. The learned arbitrator has opined that the only reasonable interpretation to the contract was that for certain durations the supply had to be in excess of the production capacity and therefore the storage capacity had to be considered while considering the adequacy of the plant capacity. With reference to the capacity of the storage tanks i.e. 3 buffer tanks each having a storage capacity of 80,000 litres of oxygen in gaseous form at 30 kg/cm2 pressure and the vaporizer equipment at the plant of Goyal Gases which could reconvert the gas in liquid form into gaseous form, learned arbitrator has concluded that taking into account said storage capacity and vaporizing facility, the plant was capable of meeting the contract specified supply.
21. The learned arbitrator has not left the discussion at the theory stage. With reference to the statement furnished by RIL giving particulars of supply of oxygen and nitrogen, learned arbitrator has noted under:
RIL has filed a statement giving particulars of supply of Gaseous Oxygen and Gaseous Nitrogen during the period from July 31, 1996 to October 11, 1997 [Vol.III-B, pp 77 to 98]. Insofar as supply of Gaseous Oxygen is concerned, the said chart shows that on the very first day of commencement of supply of Gaseous Oxygen through pipeline, i.e., on July 31, 1996 the supply of Gaseous Oxygen from the plant of GMGGL was 13,455 Sm3 which was in excess of 13,333 Sm3, the daily average supply as per MGO of 400,000 Sm3 per month. As per the said statement GMGGL had supplied Gaseous Oxygen in excess of 13,333 Sm3 [in the range of 13,455 Sm3 and 17,944 Sm3] on 31 dates and on the following dates the supply was in excess of 17000 Sm3:
31.07.1997 17291 m3 01.08.1997 17944 m3 05.08.1997 17223 m3 15.08.1997 17673 m3 As regards the supply of Gaseous Nitrogen the said statement shows that GMGGL had made supply in excess of 3,333 Sm3, the daily average supply as per MGO of 1,00,000 Sm3 per month [in the range of 3600 Sm3 and 5826 Sm3 ] on 10 dates.
22. Raising a challenge to the award, Shri Valmiki Mehta, learned senior counsel for RIL submitted that the learned arbitrator had virtually rendered redundant Annexure-V to the agreement. Learned senior counsel further submitted that merely because on 4 dates, supply in excess of the minimum guaranteed off-take was made was no justification to infer that the plant was capable of producing the desired capacity. Lastly, counsel urged that liquid oxygen was more expensive than oxygen in the gaseous form and it did not sound to logic or reason for Goyal Gases to convert oxygen in the liquid form and supply the same in the gaseous form, for in so doing, it would lose good money.
23. Shri Valmiki Mehta, learned senior counsel for Goyal Gases conceded that the issue of adequacy or not of the plant related only to the capacity to supply requisite volume of oxygen gas and that this Court may eschew reference to nitrogen gas. Thus, I would be discussing the challenge with reference to supply of oxygen gas alone.
24. Shri Valmiki Mehta, learned senior counsel for Goyal Gases conceded that if as per requirement of Annexure-V each day 10 heats were required at a flow rate of 5400m3 per hour for a duration of 35 minutes gaseous oxygen required per day would be 25,500m3 per day i.e. 7,65,000m3 per month which would be far in excess of the minimum guaranteed supply of 5,50,000m3 per month.
25. Thus, the only reasonable inference, by harmonizing the various terms of the contract, is that it was reasonably expected by the parties that the requirement of Annexure-V would be evenly spaced out during the calendar month and not that in the first 20 days of the month everything would be consumed and in the last 10 days nothing would be consumed. Further, the even spacing of the supply, resulting in storage being re-filled and subsequently utilized to meet the peak demand was reasonably in the contemplation of the parties. I note the conclusion on this issue in the language of the learned arbitrator. He has held as under:
The requirement of 25,500m3 per day indicated in Annexure-V cannot be regarded as the regular daily requirement of Gaseous Oxygen to be supplied through pipeline because in that event the monthly requirement for Gaseous Oxygen would amount to 7,65,000 Sm3 per month which would be far in excess of the monthly requirement of 5,50,000 Sm3 stipulated under the Agreement. The requirement contained in Annexure-V has to be construed harmoniously with the overall monthly requirement stipulated in clause of the Technical Officer in Annexure-I of the Agreement and if the two provisions are thus construed the requirement of 25,500m3 per day indicated in Annexure-V has to be regarded as the maximum requirement per day which GMGGL may be asked by RIL to supply if and when the need arises but such a demand shall be made by RIL keeping in view the overall monthly requirement of 5,55,000 Sm3 stipulated under Clause 1 of Annexure to the Agreement.
26. It is settled law that an arbitrator is the final authority to interpret a contract between the parties and save and except the view being perverse it is impermissible for a Court to re-read the contract for purposes of interpretation. As long as an arbitrator has considered all relevant terms of the contract and view taken by the learned arbitrator is a plausible view, this Court cannot interdict the award under Section 34 of the Arbitration and Conciliation Act.
27. It may be noted that the requirement of 5400m3 of oxygen being supplied per hour for 35 minutes means that for a continuous duration of 35 minutes peak flow rate had to be at the rate of 5400m3 per hour. Since a maximum of 10 heats had to be provided for each day subject to a maximum guaranteed supply of 5,50,000m3 per month the problem had to be solved as has been done by the learned arbitrator by co-relating the same to the average daily requirement keeping in view Annexure-V and the storage capacity of not only the gas in the gaseous form but even in the liquid form and facility available for vaporization. Thus it would be wrong to urge that the learned arbitrator looked at only the average daily production. He has additionally considered the peak flow rate of gas and daily heats required.
28. Before concluding on this issue I may note a technical detail not noted by the learned arbitrator. One litre of liquified oxygen on being converted into gaseous form yields 0.88m3 of gaseous oxygen and 1 litre of liquified nitrogen yields 0.71m3 of gaseous nitrogen. Meaning thereby the capacity of the liquid storage tanks, with reference to the respective gas in gaseous form, has to be on the afore-noted conversion parameter.
29. On the issue, last submission made by Shri Valmiki Mehta, learned senior counsel may be noted. Relying upon bills filed before the learned arbitrator evidencing purchase of liquified gases by RIL from third parties at a higher price, it was submitted that why would RIL purchase gases in the market at a higher price thereby causing financial loss to it other than the reason of necessity, meaning thereby, Goyal Gases did not effect the requisite supply.
30. This aspect has not been discussed by the learned arbitrator while dealing with adequacy of plant capacity but to some extent has been dealt with while discussing the issue whether Goyal Gases failed to supply the Minimum Guaranteed supply of gases. I shall therefore deal with the issue while dealing with the award under said head but may only note that as would be noted from the discussion towards the latter part of my decision, the issue appears to have been argued before the learned arbitrator in a different form i.e. with reference to specific date/periods and not as was projected before me in relation to all the bills.
31. It is thus not a case where Annexure V to the agreement has been rendered redundant. The submission: Why should a person suffer a revenue loss is neither here nor there. Where cost of setting up a capital asset of limited utility is high, it makes good business sense to suffer a minor recurring revenue loss. This may be a reason. There may be many more. Costing has various facets. I need not enter into surmises and conjectures.
32. Issue pertaining to storage facility was raised only with reference to oxygen. It was admitted that pertaining to nitrogen adequate storage capacity was available.
33. As per Clause 3 of Annexure I to the agreement Goyal Gases was to establish storage facility with 4 lac litres capacity for oxygen at premises of Goyal Gases.
34. The debate between the parties was whether the storage capacity was with reference to oxygen in liquid form or gaseous form.
35. With reference to Annexure III and IV to the agreement where the piping and instrumentation diagram of gas storage and regulating system located in RIL's premises was shown, learned arbitrator has noted that provision was made for 4 buffer vessels for oxygen gas having capacity of 50m3 volume with 35 kg/cm2 holding pressure. Learned arbitrator further noted that Annexure IV mentions of '4 number 35 Bars Press. 50,000 L Water Capacity Surge Vessels'. The note there under has also been noted. The same reads as under:
List above indicates instruments of gaseous oxygen storage and regulation system. The list does not include pipeline which is to be as per actual requirement.
36. The point of dispute has been noted by the learned arbitrator as under:
The submission is that the use of the expression 'gaseous Oxygen storage' in Annexure IV indicates that the four buffer vessels are meant for storage of gaseous oxygen and that according to GMGGL each vessel has to be of 50,000 litres capacity or 50m3 and thus the Agreement makes provision for storage capacity of 200m3 in 4 storage vessels in RIL premises for Gaseous Oxygen supplied through pipeline.
37. Contention of RIL has been noted at page 22 of the award. It is as under:
On behalf of RIL, a distinction is sought to be made between a 'Surge Vessel' and a 'Storage Vessel' and it has been urged that the use of the expression 'Surge Vessel' in Annexure IV indicates that the four vessels required to be provided in RIL premises are not storage vessels. According to RIL what is required is that the total capacity of the four Surge Vessels as mentioned in Annexures III and IV would be 50,000 litres or 50m3. Shri Avtar Singh (CW-1) has made a distinction between a Storage Vessel and a Surge Vessels and has stated that a Surge Vessel does not have any Stop-Valve or Gate-Valve or any other fitting coming in between it and other fittings pipeline etc. and no meter is attached to it and it is not meant for reading the pressure or for storing the gases [Q. Nos. 79 to 83, pp.18 and 1, Vol.IV-A]. According to Shri Avtar Singh, the Surge vessels are placed on the main pipeline about a few meters, 20- 25 meters away from AOD furnace and that three vessels which have been taken on lease by RIL from GMGGL and are installed at a distance of about 200 metres away from the main furnace are Storage Vessels and not Surge Vessels. [Q. Nos. 290-297, p.47, Vol.IV-A]. Shri Avtar Singh has also stated that, apart from the three vessels, which were taken on lease by RIL from GMGGL, RIL had obtained four Surge Vessels with a total capacity of 50,000 litres (Q. Nos. 1091 to 1094, p.166, Vol.IV-A] and that these vessels were installed in September-October of 1995 [Q. No.1105, p.168, Vol.IV-A]. Shri Avtar Singh has also stated that these 4 vessels have been installed 20 metres away from AOD furnace.
38. Response of Goyal Gases has been noted as under:
Shri G.K.Balaya, on the other hand, has stated that storage vessels/buffer vessels/Surge vessels are the same vessels installed in the pipeline system and that three storage tanks which are installed in RIL premises which are taken on lease from GMGGL are storage vessels.
39. With reference to Ex.A-49 and Ex.A-50 being letters dated 26.6.1995 and 17.7.1995 written by Goyal Gases to RIL and discussing Annexure III and IV to the agreement the learned arbitrator has opined that the expression 'Buffer Vessesl 50m3 Water Volume 35 kg/cm2 Holding Pressure' and the expression 35 Bars Press. 50,000 'L Water Capacity Surge Vessels' show that the 4 numbers of vessels described as 'Buffer Vessels' in Annexure III and 'Surge Vessels' in Annexure IV are meant for storage of gaseous oxygen. Learned arbitrator has held that requirement of '35 Bars Press.' (Annexure IV) and requirement of '35 kg/cm2' holding pressure (Annexure III) has to be with reference to the gas in gaseous form.
40. Letters Ex.A-49 and Ex.A-50 have been noted by the learned arbitrator as contemporaneous conduct and how did the parties understand the technical aspects. The learned arbitrator discusses as follows:- 'In letter [Ex.A-49] dated June 26, 1995 sent by GMGGL to RIL [Vol.III-A, p.37] reference is made to the points which are discussed at the meeting between representatives of GMGGL and RIL on June 23, 1995. Point No.2 is in the following terms:
RIL asked GGL to give them the buffer vessel specifications, including prospective suppliers names, so that RIL can initiate procurement action. GGL agreed to give this also on 28.6.95.
The said letter dated June 26, 1995 at the bottom refers to the enclosures with the letter. At S. No.2 there is a mention of 'Suggested drawings for buffer vessels and specifications' and at S. No.3 there is a mention of 'Names of Prospective Suppliers for Buffers Vessels'. In their letter [Ex.A-50] dated July 17, 1995 [Vol.III-A, p.38] GMGGL wrote to RIL that the date given in form of indicative drawing is sufficient for parties to send their offers and that as each party will have their own dimension based on the tools they have for the manufacture of the vessel, they would be suggesting the vessel with their drawing and design. It would thus appear that after the execution of the Agreement RIL made efforts to obtain the Buffer vessels for storage of gaseous Oxygen as required in Annexure III and IV to the Agreement but since they were unable to arrange for the storage vessels they took on lease three vessels having capacity of 80m3 each, i.e., in all 240m3 under the lease Agreement dated March 1, 1996 and the same were installed in RIL premises. If RIL had already installed the four Surge tanks as per stipulation in Annexure III and Annexure IV in September-October 1995, as claimed by Shri Avtar Singh, RIL had no need to take on lease the three storage tanks from GMGGL in March 1996. The fact that the three storage tanks were each of 80,000 litres capacity with a total capacity of 2,40,000 litres would show that the 4 Buffer/Surge Vessels to be installed in RIL premises as per Annexure III and Annexure IV of the Agreement were to be of 50,000 litres capacity each, i.e., 2,00,000 litres in all and not 50,000 litres in all, as stated by Shri Avtar Singh. In the circumstances it must be held that under the terms of the Agreement storage vessels for storage of gaseous Oxygen were required to be installed in RIL premises and not in GMGGL premises and that as per the said Agreement RIL have installed three storage vessels having a combined capacity of 240sm3 in the three storage vessels taken on lease from GMGGL under the lease Agreement dated March 1, 1996 and it was not the obligation of GMGGL to provide for storage facility for storage of gaseous oxygen in GMGGL premises.
41. Suffice would it be to state that the learned arbitrator has come to grips with the issue and has duly noted all relevant terms of the contract. It is not a case where an important term of the contract has been ignored. The learned arbitrator has discussed the merits and demerits of the rival versions. This mandate was to interpret the contract. He has done so. It is not a case where the contract admitted of no 2 meanings and had simply to be applied. I decline to recharter the journey for it would require me to sit in appeal over the merits of the conclusions arrived at by the learned arbitrator.
42. In concluding I may highlight a facet. Storage capacity of gases in gaseous form is always noted in units of pressure per area, for example 'kg/cm2' or 'pounds/cm2'. Storage capacity of gases in liquid form is referred to with reference to volume i.e. 'litre', 'Kilo-litre' etc. The learned arbitrator has noted this fundamental concept.
43. As per the contract the supply of gases in gaseous form through pipeline had to commence on 31.12.1995 but the actual supply commenced on 31.7.1996. Who was responsible for the delay was a matter in issue before the learned arbitrator. It was an admitted case that certain equipment and pipe line at RIL's complex was installed only by July 1996.
44. Case of RIL was that it was the duty of Goyal Gases to undertake installation of the necessary equipment even at it's complex. Stand of Goyal Gases was that it was obliged only to provide the necessary technical details and design of the facility to be installed at RIL's premises.
45. Learned arbitrator has discussed the issue at pages 25 to 31 of the award. Learned arbitrator has divided the discussion under 2 heads: (a) Installation of pipe line, and (b) Installation of meters and measuring devices.
46. Clause 2 and 5(b) of Annexure I to the agreement were the focus of the debate. Goyal Gases relied upon Clause 2 and earlier part of Clause 5(b) and RIL relied upon latter part of Clause 5(b). The learned arbitrator has noted both the clauses. They read as under:- Clause 2 of Technical Offer:
Laying of pipeline up to RIL's boundary shall be carried out by GGL on their own cost. Pipeline from RIL's boundary to user points shall be completed by RIL at their own cost.
xxx xxx xxx Clause 5(b) of Technical Offer:
Necessary piping work including pipeline from RIL boundary to their user points, Surge vessels and allied equipments and technical details of facility to be installed by RIL is enclosed as Annexure IV. The maintenance responsibilities of the facility under RIL scope shall be that of GGL except to that extent of material costs. The operation of the said facility will be the responsibility of RIL whose personnel shall follow the technical advise of GGL xxx xxx xxx GGL shall install all related facilities at GGL and RIL as per GGL's designs based on Annexure V given by RIL. The facilities installed at RIL will be at the cost of RIL and at GGL at GGL's own cost.
47. The learned arbitrator has interpreted the 2 clauses to mean that obligation of installing facilities at RIL's premises was that of RIL and only obligation of Goyal Gases was to provide the technical details and designs. The reasons for said conclusion is as under:
In my opinion, all the three statements referred to above have to be read together and if thus read it would be evident that in Clause 2 it has been clearly indicated that while laying of pipeline up to RIL boundary shall be carried out by GMGGL at their own cost, pipeline from the RIL boundary to user points shall be completed by RIL at their own cost. The words 'completed by RIL' in Clause 2 indicates that the obligation for providing the pipeline for RIL premises is that of RIL. Similarly in the earlier part of Clause 5(b) wherein it is provided that for necessary piping work including pipeline from RIL boundary to their user points, Surge vessels and allied equipments, technical details of facility to be installed by RIL shall be provided by GMGGL and the list of items to be installed by RIL is enclosed as Annexure IV, it is indicated that while technical details of facility shall be provided by GMGGL the same shall be installed by RIL. The use of the words 'installed by RIL' at two places in Clause 5(b) also shows that the obligation to install the facilities were of RIL and GMGGL were required to give technical details of the facility to be installed by RIL. The latter portion of Clause 5(b) on which reliance has been placed by RIL wherein it is stated that GMGGL shall install all related facilities at GMGGL and RIL as per GMGGL's designs based on Annexure V given by RIL cannot be construed to negate what has been indicated earlier and has to be read harmoniously with the earlier provisions in Clauses 2 and 5(b) above and can only mean that while GMGGL shall install all related facilities at GMGGL, RIL will do so as per GMGGL designs based on Annexure V given by RIL.
48. Apart from interpreting the contract on its terms, learned arbitrator has noted the contemporaneous conduct of the parties which evidenced that both parties understood their respective obligations as afore-noted. The learned arbitrator has noted a meeting held between the two groups on 23.6.1995 and letter dated 26.6.1995, Ex.A-49, written by Goyal Gases based on the discussions held in the meeting. The learned arbitrator has also noted a lease agreement dated 1.3.1996 where under RIL took on lease certain equipment for installation at it's premises.
49. Letter dated 26.6.1995 evidences that Goyal Gases gave the necessary technical aid and design for laying of pipes at RIL's premises. This is in accordance with its obligations under the agreement. The fact that RIL took on lease the necessary equipment evidences that it understood the contract as interpreted by the learned arbitrator.
50. Certainly, Clause 2 and 5(b) arose for interpretation and thus learned arbitrator was within his mandate to interpret the same. The view taken is a probable view. The reasoning cannot be called ipxi dixit of the learned arbitrator.
51. Regarding the metering equipment, main agreement and Clause 5(b) of Annexure II to the agreement referred to the said aspect. Learned arbitrator has noted both. The 2 read as under:- 'The delivery of gases being a continuous process, once gases pass the said point of delivery i.e. the point of measurement, the BUYER shall be deemed to be in exclusive possession and control of the said gases and fully liable and responsible for its arrangements, appurtenances and properties.
xxx xxx xxx Clause 5(b) of the Commercial Offer:
For supply of Oxygen and Nitrogen gases through pipelines from the proposed plant of GGL, the quantity of gases supplied in Sm3 [Standard cu.m.] shall be measured by a flow meter and DT recorder calibrated to record in cubic meters at 27 degree celsius with respect to one atmosphere and shall be installed in the premises of RIL at their cost. They flow meter and DT recorder shall be locked/calibrated and sealed jointly by RIL and GGL. This shall be installed at a rain protected area in a room jointly locked by RIL and GGIL.
The meter reading shall be taken once a week for the purpose of billing. GGL's representatives shall have free access to inspect the flow meter at any time. In the event of any maintenance/repair of flow meter rendering the same as unoperational, the average specific consumption of gases i.e. gases consumed per tonne of steel produced by RIL in the preceding 7 working days multiplied by actual tonnage of steel produced during the period of meter remained unoperational/defective shall be considered the basis for raising bills.
52. Learned arbitrator has interpreted the contract in favor of RIL and has noted that stand of Goyal Gases to the contrary was incorrect. But has concluded the discussion as under:
But then it was for RIL to take steps to install the meters in their premises. They failed to do so till September 3, 1997 when they installed the meter for measurement of Nitrogen gas supply through pipeline and the meter for measurement of Oxygen gas supply through pipelines was installed much later in 1998 when the supply of gases had been stopped by GMGGL. In the circumstances, it cannot be said that there was any breach by GMGGL of their obligation under the Agreement in the matter of installation of meters for measuring supplies of Oxygen and Nitrogen gases through pipelines. RIL have paid for pipeline supplies of gases by GMGGL on the basis of the bills raised by GMGGL and have availed MODVAT benefit on the basis of those bills in the matter of payment of excise duty. The grievance of RIL regarding non-installation of meters in their premises is, therefore, of little significance.
53. No material was shown to me wherefrom it could be gathered that RIL had installed the meter for measuring nitrogen gas before 3.9.1997 and for measuring oxygen gas in the year 1998. Meaning thereby, the factual finding returned by the learned arbitrator is correct.
54. It would not be out of context to note that Goyal Gases raised bills for supply of gases on basis of electricity consumed by the compressors at premises of Goyal Gases, a mode permitted by the excise authorities, as per meters installed at premises of Goyal Gases. Both these aspects have been noted by the learned arbitrator.
55. It is trite that a breach become actionable if consequences ensue from the breach causing loss to the opposite party. Where no consequences flow the breach remains technical. Thus the conclusions reached by the learned arbitrator stand the scrutiny of law. 56. Learned arbitrator has then proceeded to consider the issue of non supply of gases through pipe line. He considered the same in relation to 3 periods:
(i) 1.1.1996 to 30.7.1996.
(ii) 31.7.1996 to 11.10.1997.
(iii) 12.10.1997 onwards.
57. For the period 1.1.1996 to 30.7.1996 the inevitable corollary of the finding that RIL was responsible for laying the pipes at its premises and that RIL completed said works by the end of July 1996 is that RIL was responsible for gases not being supplied through pipe line during said period.
58. I eschew any further discussion pertaining to said period for the reason notwithstanding the default by RIL learned arbitrator has held that Goyal Gases is not entitled to any claim for said period as Goyal Gases did not lead evidence to show that during said period it had the requisite volume of gases which it could supply. Goyal Gases has not filed any cross objections to the award. Thus neither party would be entitled to any claim against other for said period.
59. Regarding the period 31.7.1996 to 11.10.1996, with reference to the statement of claim filed by RIL and supplementary pleadings, learned arbitrator noted that grievance about non-supply of gases related to the following dates:
(i) Stoppage of supply of gases through pipeline and liquid gas by tankers on August 14, 1996 [p.9, para 19, Vol.II];
(ii) Non-supply of Oxygen through pipeline on April 3 and 4, 1997 [p.14, para 33, Vol.II and Vol.III-A, p.88A];
(iii) Short supply of gases through pipeline on May 12, 1997 [p.16, para 36, Vol.II and Vol.III-A, p.96A];
(iv) Short supply of gases through pipeline on June 9 and 10, 1997 [p.18, para 40, Vol.II and Vol.III-A, p.96A]
(v) Non-supply of gases through pipeline on June 13, 14 and 16, 1997 [pp.18-19, paras 41 and 43, Vol.II];
(vi) Non-supply of gases through pipeline from June 21 to June 24 1997 [p.19, para 44, Vol.II].
(vii) Non-supply of Nitrogen gas through pipeline on June 27, 1997 [p.20, para 46, Vol.II]
(viii) Non-supply of Nitrogen gas through pipeline on July 8 and 9, 1997 [p.20, para 47, Vol.II];
(ix) Short supply of gases through pipeline on August 19 and 20, 1997 [p.21, para 49, Vol.II and Vol.III-A, p.42].
60. Pleadings of Goyal Gases shows that it admitted non-supply on 14.8.1996 and in fact till 21.8.1996 as also from 21.6.1997 to 24.6.1997 but pleaded force majeure situation for said periods. Qua other periods the charge of non-supply of gases was denied.
61. Thus learned arbitrator considered the 7 periods for which Goyal Gases denied being in default with reference to the bills raised and considered the 2 periods for which Goyal Gases pleaded force majeure situation.
62. It be noted that periods at serial No.(i) and (vi) noted in para 59 above are the ones for which force majeure situation was pleaded and periods at serial No.(ii) to (v) and (vii) to (ix) are the ones qua which Goyal Gases denied being in default.
63. Qua periods at serial No.(ii) to (v) and (vii) to (ix), the learned arbitrator held that record established that Goyal Gases supplied requisite gases and complaints of RIL were a ruse.
64. Being a finding(s) of fact and since nothing was shown to me with reference to the documents noted by the learned arbitrator to bring home that the findings of fact were not based on record, I would have not taken the trouble to note the reasons of the learned arbitrator, but as noted in para 29 above, a submission was made that since RIL had been purchasing gases in the liquified form from third parties at higher rates said fact proved that the plant set up by Goyal Gases was not of adequate capacity. In other words alleged non-supply of requisite quantity of gas was used as a powerful argument.
65. The underline logic of the submission made by Shri Valmiki Mehta, learned senior counsel for RIL was that only a fool would purchase a commodity at a higher rate and since it was nobody's case that RIL was a fool, from the fact that RIL purchased gases in the market at higher rates only conclusion which could be drawn was that Goyal Gases did not and could not manufacture the minimum guaranteed supply of gases.
66. Bills filed by RIL before the learned arbitrator evidence that RIL had purchased oxygen and nitrogen in liquified form from third parties at much higher rates than what were agreed to between RIL and Goyal Gases.
67. At first blush, the argument looks very attractive indeed making out an open and shut case. But, as noted in para 30 above, this aspect has been discussed by the learned arbitrator, though briefly, after discussing the highlighted default periods. The reasoning is being noted in para 75 below.
68. Shri Sandeep Sethi, learned senior counsel for Goyal Gases submitted that before the learned arbitrator the issue was never projected with reference to bills of third parties. Issue of non-supply of gases was urged with reference to the 9 periods noted by the learned arbitrator and hence the award deals with said periods only and not generically as was now sought to be argued.
69. The relevance of my penning paras 64 to 68 is to bring home the point that if the issue was urged before the arbitrator in the facet it was urged before me, material and response would have been before the learned arbitrator and of course the decision.
70. It would not be permissible to challenge an award with reference to a case not even set up before the arbitrator. That apart, the charge of non-supply of gases on 7 specific and identified periods failed. If what was highlighted failed, the fate of what was not highlighted may well be the same.
71. It is not in dispute that the plant was designed to produce oxygen in gaseous form and nitrogen in gaseous form in the ratio 8:3 i.e. for every 8 cu.m. of oxygen 3 cu.m. of nitrogen would be produced. Further since oxygen liquifies at -182.820C and nitrogen -195.640C, if nitrogen was produced it had to be preceded by oxygen distillate being separated. Thus production of nitrogen proves production of oxygen but not vice versa.
72. For the period April 3 and 4, 1997, learned arbitrator has noted that vide Ex.A-6, letter dated 4.4.1997, RIL made a complaint that it was not getting oxygen gas. It was denied by Goyal Gases. From the statement of purchase of oxygen and nitrogen through pipeline, learned arbitrator noted that 3654m3 of oxygen and 784m3 of nitrogen was supplied on 3.4.1997 and on 4.4.1997, 1642m3 of oxygen and 1546m3 of nitrogen was supplied. Further, learned arbitrator noted that on 3.4.1997 RIL purchased 12909m3 of liquid oxygen from Goyal Gases. Since the 2 gases were manufactured (in gaseous form) in ratio of oxygen 8 and nitrogen 3, learned arbitrator has rightly opined that if on 4.4.1997 Goyal Gases supplied 1546m3 of nitrogen gas it would have with it at least 4112m3 of oxygen gas. Further, sale of 12909m3 of liquid oxygen on 3.4.1997 evidences that Goyal Gases had sufficient quantity of liquid oxygen with it.
73. The iiird to vth and viith to ixth periods of alleged defaults have been like wise discussed. I reproduce the same as per the award:
(a) As regards short supply of gases through pipeline on May 12, 1997 there is the letter of RIL dated May 12, 1997 [Vol.III-A, p.95] addressed to GMGGL that on May 12, 1997 RIL had received through pipeline Oxygen for two heats only and Nitrogen gas for one heat. GMGGL have pointed out that on May 12, 1997 GMGGL had supplied through pipeline 5136 Sm3 of Oxygen and 1095 Sm3 of Nitrogen [Vol.III-B, p.90]. It has been urged that the supply of 5126 Sm3 of gaseous oxygen would show that the production of gaseous Nitrogen would have been 1926 Sm3 which was sufficient for three heats and that RIL had chosen to receive the supply of Nitrogen through pipeline for one heat only on May 12, 1997. Shri G.K.Balaya in his affidavit dated March 10, 2002, by way of evidence, has stated that after receipt of letter dated May 12, 1997 he sought a meeting with Shri Anil Rathi, Director of RIL and a meeting was held in the office of Shri Rathi wherein Shri Balaya claims to have specifically pointed out to Shri Rathi that GMGGL were always in a position to supply gases even in a situation where the production facilities may not be working since they had sufficient liquid storage facilities from which gasified supplies could be made on immediate alternative basis and that during this period, in any event, sufficient production of gaseous Oxygen and Nitrogen was made and, therefore, there was no reason not to supply gas through the pipeline. [Vol.IV-B, pp.393- 394, para 25]. During the course of cross-examination, Shri Balaya was not put any question contesting his statement regarding the aforesaid meeting.
(b) Regarding short supply of gases through pipeline on June 9 and 10, 1997, there is letter [Ex.A-11] of RIL dated June 10, 1997 [Vol.III-A, p.96A] wherein RIL had complained that on June 9, 1997 they got Nitrogen gas through pipeline for two heats only and on June 10, 1997 they got the gas supply for one heat only. GMGGL have pointed out that RIL had received through pipeline 6453 Sm3 of oxygen and 1488 Sm3 of Nitrogen on June 9, 1997 and on June 10, 1997 they received 11796 Sm3 of Oxygen and 1834 Sm3 of Nitrogen. [Vol.III- B, p.92]. These figures regarding supply of gaseous Oxygen would show that production of gaseous Nitrogen was much more than the quantity drawn by RIL on these dates and RIL had chosen to draw less quantities. GMGGL in their letter [Ex.RW.1/36] dated June 13, 1997 in reply to fax message of RIL dated June 10, 1997 have stated that RIL had not fully consumed the gas and the compressor had to be stopped because the pressure on the pipeline was full. RIL were requested to take full quantities of Oxygen through pipeline so that the compressor may run round the clock. [Vol.III-A, p.98]
(c) As regards non-supply of gases through pipeline on June 13, 14 and 16, 1997 RIL have relied on their letter [Ex.A-14] dated June 17, 2002 [Vol.III-A, p.101] wherein it is stated that there was no pipeline supply on June 13 and 14, 1997 and on June 15 their plant was closed due to weekly off and on June 16 gas was available up to 7.30 A.M. after which the line beame unoperational due to drop in pressure. GMGGL have pointed out that the following supplied were made of gases through pipeline on these dates:
Dates 13.6.97 14.6.97 15.6.97 16.6.97 Nitrogen 1528 755 334 948 Oxygen 10213 4868 1638 3909 The said figures tally with the figures mentioned in the Statement of Purchase of Gases through pipeline submitted by RIL [Vol.III-B, p.92]. The said figures regarding supply of gas through pipeline belie the complaint of RIL that there was non-supply of gases on June 13 and 14, 1997.
(d) The assertion of RIL that there was no supply of Nitrogen gas through pipeline on June 27, 1997 also does not find support from the record because on June 27, 1997 11749 Sm3 of Oxygen gas and 277 Sm3 of Nitrogen gas was supplied through pipeline. [Vol.III-B, p.93]. The fact that 11749 Sm3 of Oxygen was produced and supplied through pipeline would show that sufficient quantity of gaseous Nitrogen had been produced and was available for supply and it was RIL who had failed to draw the gas. In this context, it may be mentioned that the case of GMGGL is that on June 26, 1997 the production of liquid Nitrogen was 28028 cu.m.
(e) The complaint of RIL regarding non-supply of Nitrogen gas on July 8 and 9, 1997 is also not borne out by the record. On July 8, 1997, 12305 Sm3 of Oxygen gas and 121 Sm3 of Nitrogen gas was supplied through pipeline and on July 9, 1997 9227 Sm3 of Oxygen gas and 268 Sm3 of Nitrogen gas was supplied through pipeline [Vol.III-B, p.94]. The figures regarding supply of Oxygen gas through pipeline would show that sufficient quantity of gaseous Nitrogen had been produced and was available for supply. GMGGL have submitted that on July 8 and 9, 1997 the quantity of liquid Nitrogen produced was 30,000 cu.m. and 34918 cu.m. respectively.
(f) So also with regard to complaint about inadequate supply of Nitrogen gas through pipeline on August 19 and 20, 1997 the record shows that on August 19, 1997 RIL had received 16174 Sm3 of oxygen gas and 1274 Sm3 of nitrogen gas through pipeline [Vol.III-B, p.96]. The figures regarding supply of Oxygen gas through pipeline would show that sufficient quantity of gaseous Nitrogen had been produced and was available for supply.
74. All I need to add is that reasoning of the learned arbitrator is based on sound logic and needs to be accorded the stamp of approval.
75. Learned arbitrator has thereafter touched the contention of RIL that why should it have purchased gases in liquid form which was expensive. Following has been held:
RIL have urged that the rates for liquid gases were higher than the rates for gases supplied through pipeline under the Agreement and that if gases were available with GMGGL for supply through pipeline there was no reason why RIL should have obtained liquid gases at higher rates. GMGGL have controverter this submission and have submitted that when GMGGL raised the rates for gases supplied through pipeline as per the terms of the Escalation clause in Agreement, RIL started raising objections regarding pipeline supplies being not adequate or about fall in pressure or the gases containing impurities and reduced the off-take of supplies of gases through pipeline in order to pressurise GMGGL to reduce the off-take of supplies of gases through pipeline in order to pressurize GMGGL to reduce the prices for pipeline supplies because RIL knew that gases produced in the plant of GMGGL, if not taken by RIL, could not be put to any use and had to be vented. Since the complaints of RIL regarding non-supply of gases through pipeline on dates other than August 16 to 21, 1996 and June 22 to 24, 1997 do not find support from the record, the explanation offered by GMGGL can be accepted as more plausible. The assertion of RIL in respect of non-supply of gases on dates other than August 16 to 21, 1996 and June 22 and 24, 1997 cannot, therefore, be accepted.
76. The reasoning cannot be called perverse or of the kind which calls for judicial interference, more so, when for the 7 highlighted periods, Goyal Gases successfully established that RIL's stand regarding non supply of gases was false.
77. Pertaining to the period 16.8.1996 to 21.8.1996 and 22.6.1997 to 24.6.1997 for which Goyal Gases pleaded force majeure conditions, on facts the decision is against Goyal Gases and RIL has been recompensed the price differential between the gases in gaseous form and liquified form. Since Goyal Gases has not challenged the award I need not note the discussion relating thereto save and except to note that RIL has not challenged the computation of recompense.
78. For the period beyond 11.10.1997 when no supply was made through pipe line, learned arbitrator noted that as per Goyal Gases huge amount i.e. Rs. 72,63,752/- was outstanding against the bills raised till 11.10.1997 and that electricity charges had been enhanced by U.P.S.E.B. That as per the contract bills had to be cleared by RIL within 30 days of receipt of the bill. That Goyal Gases had no option but to disconnect the supply as it could not become the financier of RIL.
79. Learned arbitrator has noted the defense of RIL that on Rs. 15,04,491/- was outstanding.
80. Learned arbitrator has noted the rejoinder of Goyal Gases which explained that sum of Rs. 15,04,491/- was worked out as outstanding by RIL was by unilaterally reducing the bill amount and even adjusting Rs. 9,73,191/- paid as lease rental under the agreement dated 1.3.1996 from the amount due towards sale of gases.
81. With reference to Ex.R-5, Ex.R-8, Ex.R-12, Ex.R-13, Ex.R-14, Ex.RW-1/40, Ex.RW-1/42, Ex.RW-1/47 and Ex.RW-1/48 learned arbitrator has held in favor of Goyal Gases that it was entitled to suspend the supply of gases till it's bills were cleared.
82. Quantity of gas supplied and payment made and payment outstanding are all issues of evidence and hence within the final domain of the arbitrator.
83. The learned arbitrator has thereafter proceeded to quantify the claims and save and except 2 issues of a substantive nature dealt with by the learned arbitrator, the award quantifies the rival claims.
84. I thus deal with the 2 surviving issues dealt with by the learned arbitrator.
85. The agreement was to remain valid and binding for 7 years with effect from 31.12.1995. Since Goyal Gases suspended the supply w.e.f. 11.10.1997, RIL terminated the contract. Since learned arbitrator held that Goyal Gases was justified in suspending the supply of gases as huge amount had become outstanding, the retaliatory action of RIL to terminate the contract was held to be invalid.
86. Now obviously, the contract was to remain alive till 31.12.2002 and Goyal Gases was entitled to insist that RIL lifts the minimum guaranteed off-take of gases or pay damages.
87. Before the arbitrator, on 8.12.1999, Goyal Gases moved an application that RIL may be directed to receive the gases. Goyal Gases made said prayer without insisting on being paid the outstanding amount. RIL opposed the application.
88. Pertaining to counter claim of Goyal Gases for being paid the money as per Clause 6(b) of the agreement i.e. the minimum guaranteed off-take by RIL, learned arbitrator has held as under:
Treating the suspension of supplies by GMGGL as a breach of their obligations under the contract, RIL had terminated the contract. This shows that a dispute had arisen between the parties to the contract with regard to supply of gases through pipeline. GMGGL wanted to resolve the dispute by negotiation but they did not succeed in this effort. The only course available was to have the dispute resolved through arbitration as per the terms of the contract. This was the course suggested by RIL in their letter [Ex.A-35] dated June 19, 1998 [Vol.III-A, p.193] and letter [Ex.A-42] dated April 12, 1999 [Vol.III-A, p.269], from Shri Shiv Khorana, Advocate Advocate for RIL, GMGGL agreed to have the dispute referred to arbitration in their letter [Ex.R-20] dated May 11, 1999 [Vol.III-A, p.240] and thereafter the dispute was referred to arbitration. After the reference, GMGGL moved an application dated August 12, 1999 [Vol.V, p.1] in these arbitral proceedings seeking a direction to RIL to resume lifting, against payment, the supplies of 550000 Sm3 of oxygen and 140000 Sm3 of nitrogen per month for the period as provided in the Agreement. This application was opposed by RIL.[Vol.V,p.31]. It would thus appear that after suspending the supply of gases through pipeline on October 12, 1997, GMGGL offered to supply gases through pipeline without insisting on payment of outstanding dues by their application dated August 12, 1999 and till August 12, 1999 GMGGL were not willing to supply gases through pipeline to RIL till the outstanding dues in respect of earlier supplier were paid by RIL. GMGGL are, therefore, not entitled to claim compensation under Clause 6(b) of the Commercial Offer in the Agreement for non-lifting of MGO quantities of gases by RIL for the period from October 12, 1997 to August 12, 1999 and they can claim such compensation only for th period from August 13, 199 to December 30, 2002.
During the course of oral submissions, Shri Gopal Subramanium, learned senior counsel appearing for GMGGL, submitted, in the alternative, that instead of payment of compensation by RIL for non-lifting of MGO quantities of gases during the period from October 12, 1997 to December 30, 2002, GMGGL would be satisfied if the period of operation of the contract is extended so as to cover this period from October 12, 1997 to December 30, 2002 with effect from the date of the award. In other words, the submission is that the period of the contract may be extended by a period of 5 years and 80 days from the date of the award. Since I am of the view that GMGL are not entitled to claim compensation for the period from October 12, 1997 to August 12, 1999 the said period has to be excluded and the period of operation of the contract can be treated to be extended only by the period from August 13, 1999 to December 30, 2002, i.e., by a period of 3 years and 140 days. The said period will have to be counted from the date of the award.
Claim No. 4 is partly allowed to the extent that RIL will pay compensation in the form of 100 % of the contract value of gases to GMGGL for not lifting the MGO quantities of gases to be supplied through pipeline, i.e., 320000 Sm3 of oxygen and 80,000 Sm3 of nitrogen per month for the period from August 13, 1999 to December 30, 2002. If GMGGL have made supplies of oxygen and nitrogen gas through pipeline during the period the amounts received by them for such supplies will have to be adjusted against the amount payable by RIL to GMGGL under their head of claim. In the alternative, FIL may choose to treat the contract between the parties as operative for a period of 3 years and 140 days from the date o the award and discharge their obligations as per the terms of the contract during the extended term of the contract. In case RIL choose to treat the contract as operative till the aforementioned period, they will send an intimation exercising their option in this regard to GMGGL within two weeks of the making of the award.
89. It was urged by Shri Valmiki Mehta, learned senior counsel for RIL that the learned arbitrator could not have novated the contract by extending the contract period beyond 31.12.2002.
90. Suffice would it be to record that the learned arbitrator has not extended the contract period but has merely given an option to RIL to elect and treat the contract as extended. If RIL does not want to so elect, that is the end of the matter. I find no novation of the contract.
91. The second surviving issue pertained to the jurisdiction of the learned arbitrator to entertain the counter claim of Goyal Gases for supply of gases in liquid form till 30.7.1996.
92. It was urged by RIL that the contract was for supply of gases in gaseous form and reference in the contract dated 26.4.1995 to the continued supply of gases in liquid form was nothing more than a recital of the past. Thus it was urged that the learned arbitrator could not entertain any claim for money due for supply of liquified gases till 30.7.1996.
93. Clauses 1 and 2 of the Technical Offer and Clause 2(a) of the Commercial Offer i.e. Annexure I and III of the contract read as under:- Clause 1 of the Technical Offer:
Goyal Gases Ltd. [GGL] has agreed to supply the above referred volume of gases confirming to purities mentioned above from its proposed plant at Ghaziabad latest by 31.12.95. Till then, however, the present system of supply into storage tanks through transport tankers shall continue.
Clause 2 of the Technical Offer: Goyal Gases Ltd. shall continue supply of Oxygen, Nitrogen and Argon through transport tankers till 30.12.95 or the date from which supply can be effected from proposed plant whichever is earlier.
xxxx xxx xxx Once the regular and uninterrupted supply of oxygen and nitrogen gases at required pressure, flow rate and purity starts through pipeline, the VIE's installed at RIL shall be removed. VIE for Argon shall remain installed at the existing facility/rental charges, since Argon will continue to be supplied in liquid form only. Facility charges of LOX and LIN VIE's shall not be payable from 31.12.95 onwards till satisfactory pipeline supplies are achieved.
Clause 2(a) of the Commercial Offer:
Supplies of liquid gases being made now through VITTS will continue at the existing rates, terms and conditions of mutually agreed between RIL and GGL till 30.12.1995.
94. The learned arbitrator has interpreted the same as under:
From the aforesaid stipulations contained in the Agreement, it appears that GMGGL were required to continue supply of liquid gases, namely, oxygen, nitrogen and argon through transport tankers till December 30, 1995 or the date from which supplies can be effected from the proposed plant, whichever is earlier and till then they were also required to allow the facilities for storage of liquid oxygen and nitrogen to be retained in RIL premises. The facilities for Argon were to remain even after commencement of supply of oxygen and nitrogen gases through pipeline because Argon would continue to be supplied in liquid form only. The facilities charges for liquid oxygen and nitrogen would not be payable from December 31, 1995 onwards till satisfactory pipeline supplies were achieved. Thus insofar as supplies of liquid oxygen, nitrogen and argon till December 30, 1995 are concerned, the Agreement clearly envisages continuance of such supplies as well as the continuation of the facilities for storage of the same in RIL premises. The Agreement envisages that supply of gases through pipeline would commence latest by December 31, 1995 but as indicated earlier due to inability on the part of RIL to provide the necessary facilities for receiving the gases in RIL premises the supply of oxygen and nitrogen through pipeline could not commence till July 30, 1996 and the existing arrangement regarding supply of liquid oxygen and nitrogen and argon continued till July 30, 1996. In other words, the parties by their conduct mutually agreed to extend the time for supply of liquid oxygen and nitrogen and argon gases through transport tankers till July 30, 1996 and also agreed to maintain the facilities for storage of such liquid gases in RIL premises till July 30, 1996.
95. The view taken is plausible.
96. In any case, the clauses noted above are not the recitals to the contract nor are they akin to recitals in a contract. They find mention in the operative part of the contract. The clauses bind Goyal Gases to continue to supply gases in liquid form till switch over is made to supply in gaseous form. They mandate that Vacuum Insulated Equipment (VIE) shall be removed only when supply in gaseous form commences. Facility charges thereof have to be borne by RIL. Thus it cannot be said that dispute regarding payment due for supply of gases in liquid form, post contract, was not arbitrable.
97. Since it was conceded that if substantive findings in the award are upheld, the quantification of the respective claims shall follow, I deal with no more as the substantive findings recorded by the learned arbitrator are upheld.
98. OMP No.366/2003 is dismissed.
99. OMP No.325/2003 is disposed of as infructuous as OMP No.366/2003 stands decided.
100. No costs.