Delhi High Court - Orders
Ntpc Limited vs Hls Asia Limited & Ors on 24 March, 2022
Author: Anup Jairam Bhambhani
Bench: Anup Jairam Bhambhani
$~S-10
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. (COMM) 381/2021 & I.A.17362-65/2021
NTPC LIMITED ..... Petitioner
Through: Ms. Maninder Acharya, Senior
Advocate with Mr. Rituraj Biswas,
Mr. Viplav Acharya and Mr. Sai
Shashank V. Advocates.
versus
HLS ASIA LIMITED & ORS. ..... Respondents
Through: Mr. Sudhir Nandrajog, Senior
Advocate with Mr. Amit Gupta, Mr.
Kshitij Vaibhav and Mr. Hari Sankar
Mahapatra, Advocates for
Respondent No. 1.
CORAM:
HON'BLE MR. JUSTICE ANUP JAIRAM BHAMBHANI
ORDER
% 24.03.2022 By way of the present petition under section 34 of the Arbitration & Conciliation Act, 1996, the petitioner NTPC Ltd ('NTPC') impugns arbitral award dated 29.05.2021 rendered by the learned Arbitral Tribunal against respondent No.1 HLS Asia Limited ('HLS'), respondent No.2 M/s Geopetrol International Inc. ('Geopetrol'), respondent No.3 M/s Brownstone Ventures Ltd ('Brownstone') and respondent No.4 M/s Canoro Resources Ltd. ('Canoro').
2. For an overview, the specifics of the contracts, the contracting parties and their position before the learned Arbitral Tribunal and before this court, are the following:
Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:30.03.2022 O.M.P. (COMM) 381/2021 Page 1 of 10 12:02:25Nomenclature and Contracting Parties Position before court Position before Date of Agreement Arbitral Tribunal NTPC Petitioner Respondent No. 2 Production Sharing Geopetrol Respondent No.2 Respondent No.1 Contract (PSC) as Brownstone Respondent No. 3 Respondent No. 3 amended on 02.12.2008 Canoro Respondent No. 4 Respondent No. 4 NTPC, Petitioner Respondent No.2 Joint Operating Geopetrol Respondent No.2 Respondent No.1 Agreement (JOA) as Brownstone Respondent No. 3 Respondent No. 3 amended on 13.12.2008 Canoro Respondent No. 4 Respondent No. 4 Wireline Logging Geopetrol (acting as Respondent No. 2 Respondent No. 1 Services Agreement operator for consortium) (WLA) dated HLS Respondent No. 1 Claimant 14.07.2009
3. Though a detailed discussion of the exact nature of the transaction entered into between the parties and their respective roles in the venture undertaken, is not relevant at this stage, suffice it to say that the contracts between the parties were for exploration, development and drilling of an oil block in the Changlang District of Arunachal Pradesh. For this purpose NTPC, Geopetrol, Brownstone and Canoro had formed a consortium; which consortium had thereafter designated Geopetrol to act as 'Operator' on behalf of the consortium for undertaking exploration and development of the block. According to the petitioner, in its capacity as operator, Geopetrol also had the duty to represent the consortium before the government and courts.
4. As operator for the consortium, Geopetrol issued a tender dated 05.03.2007 to hire a wireline logging unit for carrying-out logging and perforation services, which tender was subsequently awarded to HLS for exploratory drilling.
Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:30.03.2022 O.M.P. (COMM) 381/2021 Page 2 of 10 12:02:255. Disputes are stated to have arisen from the tender awarded by Geopetrol, acting as operator, to HLS; and it was to settle such disputes that arbitration was invoked by HLS against all members of the consortium; which disputes were referred to the learned Arbitral Tribunal for adjudication.
6. By an order dated 29.05.2012, the learned Arbitral Tribunal deleted NTPC from the arbitral proceedings, holding that there was no arbitration agreement between HLS and NTPC. However, this order of the Arbitral Tribunal was reversed by order dated 22.11.2012 made in O.M.P. No. 801/2012 by a Co-ordinate Bench of this court, which held that each consortium member was a necessary party to the arbitral proceedings.
7. Thereafter, vidé settlement dated 13.06.2013, HLS arrived at a settlement of its disputes with Geopetrol; and in terms of its settlement, an interim award dated 30.07.2013 was made by the learned Arbitral Tribunal, after which Geopetrol sought deletion of its name from the arbitral proceedings and stopped participating therein. Interim award dated 30.07.2013 was challenged by NTPC by way of O.M.P No. 987/2013, in which proceedings, vidé order dated 04.07.2019 made by a Co-ordinate Bench of this court, the court ruled that the interim award shall only be treated as an order taking the settlement on record, and not as an adjudication of any substantive issues pending consideration in the arbitral proceedings.
8. It was in this backdrop that impugned arbitral award dated 29.05.2021 came to be made.
Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:30.03.2022 O.M.P. (COMM) 381/2021 Page 3 of 10 12:02:259. A summary of the decisions rendered by the learned Arbitral Tribunal in relation to the various claims is as follows:
SL. No. DESCRIPTION OF CLAIMS FINDINGS REMARKS CLAIM NO. 1 For rental of machinery starting Claim no. 1 is partly Petitioner is from 02.05.2009 till 31.01.2010 allowed. The respondent aggrieved to the and demobilization charges no. 1 is held entitled to extent of its share i.e. amounting to US$ 1,945,057.60 receive the amount of US$ 40% amounting to 12,20,377.28 towards rental US$ 6,97,358.45 and award of interest @ plus the conversion 15% (Para 134 of the rate and interest.
Award, page 110, vol-I)
The claim towards
demobilization charges is
rejected. (Para 129 of
Award, Page 107, Vol-I)
CLAIM NO. 2 For amount payable for essential Claim No. 2 is rejected service as per contract amounting (Para 135 of Award, Page to US$ 628,015.28 110, Vol-I) CLAIM NO. 3 For optional services as per the Claim No. 3 is rejected contract amounting to US$ 89,343 (Para 136 of Award, Page 111, Vol-I) CLAIM NO. 4 For the loss of business revenue Claim No. 4 is rejected amounting to US$ 1,678,000 (Para 136 of Award, Page 111, Vol-I) CLAIM NO. 5 For cost of construction of shed Claim No. 5 is rejected and other expenses INR 6,00,000/- (Para 137 of the award, Page 111,Vol-I) CLAIM FOR For interest @15% per annum on Respondent No.1 is entitled Petitioner is INTEREST the above said sums from the date to the grant of interest aggrieved by the they became due till the date of @15% per annum on the appreciation in USD actual realization. monthly fixed rental from conversion rate along the date of service of legal with the exorbitant notice till the date of filing interest @15% (pre-
of the Statement of Claim. reference period) and
The respondent no.1 is also 12% (Pendente Lite
held entitled to pendente and Post-Award
lite and future interest on Period) per annum
the award amount till gives undue benefit
realization @12% per to the Claimant.
annum. (Para 138 of
Award, Page 112, Vol-I)
Signature Not Verified
Digitally Signed
By:SUNITA RAWAT
Signing Date:30.03.2022 O.M.P. (COMM) 381/2021 Page 4 of 10
12:02:25
CLAIM FOR Towards cost of arbitration The Respondent no. 1 is Petitioner is
COSTS proceedings allowed cost of INR aggrieved to the
15,00,000/- (Para 139 of extent of its share Award, Page 112, Vol-I) i.e., 40% amounting to Rs. 8,57,142.86 plus interest thereon.
As seen from the above, only claim No. 1 has been partly allowed, along with the claim for interest and costs, while all other claims have been rejected by the learned Arbitral Tribunal.
7. Ms. Maninder Acharya, learned senior counsel appearing on behalf of the petitioner, impugns the arbitral award essentially on the following basis:
(a) Since the disputes and claims have arisen from the tender awarded by Geopetrol to HLS, to which contractual arrangement NTPC was not privy; and Geopetrol failed to defend such claims, and instead arrived at a settlement with HLS, and thereafter stopped appearing in the arbitral proceedings altogether, now NTPC could not have been saddled with the liability arising from the contract between Geopetrol and HLS.
(b) Furthermore, as per directions contained in order dated 22.11.2012 in O.M.P. No. 801/2012, all members of the consortium, including Geopetrol, were held to be necessary parties to the arbitral proceedings. Therefore, Geopetrol could not have settled the disputes with HLS for its own benefit; and could not have omitted to defend the claims, leaving other Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:30.03.2022 O.M.P. (COMM) 381/2021 Page 5 of 10 12:02:25 members, including NTPC, to face the arbitral proceedings and the award.
(c) Also, NTPC, though not signatory to the arbitration agreement between Geopetrol and HLS, was made party to the arbitral proceedings on the principle that NTPC was part of a 'single economic entity' and that all members of the consortium were so inter-dependent that a composite dispute resolution was required. In such circumstances, the learned Arbitral Tribunal could not have refused to direct the presence of Geopetrol in the arbitral proceedings; and the continuation of such proceedings in the absence of Geopetrol, was in direct conflict with the composite reference made by this court.
(d) The settlement of claims by Geopetrol with HLS was in breach of the terms of the JOA and amounted to gross negligence, willful misconduct and was against public policy, including the fundamental policy of Indian Law.
(e) Since Geopetrol, which was the only signatory to the arbitration agreement with claimant HLS, dropped-out of the arbitral proceedings, the effect was that the proceedings continued only against non-signatory parties, including NTPC.
(f) The learned Arbitral Tribunal had failed to appreciate that the settlement between Geopetrol and HLS was a result of collusion between those two parties, which was entered into to Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:30.03.2022 O.M.P. (COMM) 381/2021 Page 6 of 10 12:02:25 disable other members of the consortium from defending themselves in the arbitral proceedings.
(g) In relation to the pre-reference, pendenté lite and post-award interest on the awarded amount rendered in US Dollars, the learned Arbitral Tribunal had failed to appreciate that during the arbitral proceedings, the US Dollar had appreciated substantially against the Indian Rupee, and therefore the exorbitant interest rate of 15% per annum for the pre-reference period and 12% per annum for the pendenté lite and post award period ought not to have been awarded, since that gave undue benefit to the claimant. Such interest ought not to have been awarded also for the reason that it relates back to the year 2011, apart from bearing no correlation with the contemporary rates of interest.
(h) In any case, the learned Arbitral Tribunal also erred in awarding a uniform rate of interest of 15% and 12% as aforesaid for both the Dollar and INR components of the claim amount, which is unjustified and unwarranted. The award of interest in that manner is also contrary to the decision of the Hon'ble Supreme Court in Vedanta Ltd. v. Shenzhen Shandong Nuclear Power Construction Co. Ltd1, in which Hon'ble Supreme Court has held as follows:
1(2019) 11 SCC 465 Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:30.03.2022 O.M.P. (COMM) 381/2021 Page 7 of 10 12:02:25 "4. The current practice of awarding interest in international commercial arbitrations is riddled with inconsistencies, and is criticised for lack of uniformity. In international contracts, there is no consensus on the method or rate of awarding interest.
"5. In an international commercial arbitration, in the absence of an agreement between the parties on interest, the rate of interest awarded would be governed by the law of the seat of arbitration. The rate of interest awarded must correspond to the currency in which the award is given, and must be in conformity with the laws in force in the lex fori."
***** "9. The discretion of the arbitrator to award interest must be exercised reasonably. An Arbitral Tribunal while making an award for interest must take into consideration a host of factors, such as : (i) the "loss of use" of the principal sum; (ii) the types of sums to which the interest must apply; (iii) the time period over which interest should be awarded; (iv) the internationally prevailing rates of interest; (v) whether simple or compound rate of interest is to be applied; (vi) whether the rate of interest awarded is commercially prudent from an economic standpoint;
(vii) the rates of inflation; (viii) proportionality of the count awarded as interest to the principal sums awarded. "10. On the one hand, the rate of interest must be compensatory as it is a form of reparation granted to the award-holder; while on the other it must not be punitive, unconscionable or usurious in nature.
"11. Courts may reduce the interest rate awarded by an Arbitral Tribunal where such interest rate does not reflect the prevailing economic conditions 2 or where it is not found reasonable 3 , or promotes the interests of justice4"
8. Mr. Sudhir Nandrajog, learned senior counsel appearing on behalf of respondent No.1, on advance copy, has opposed the issuance of 2 Indian Oil Corpn. Ltd. v. Lloyds Steel Industries Ltd., 2007 SCC OnLine Del 1169 3 Manalal Prabhudayal v. Oriental Insurance Co. Ltd., (2009) 17 SCC 296 4 Food Corporation of India v. A.M. Ahmed & Co., (2006) 13 SCC 779 Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:30.03.2022 O.M.P. (COMM) 381/2021 Page 8 of 10 12:02:25 notice in the first instance. I have briefly heard Mr. Nandrajog and am not persuaded that this is a case where notice ought not to be issued.
9. Upon a prima facie consideration on the submissions made on behalf of the petitioner therefore, issue notice, returnable 13th July 2022.
10. Mr. Amit Gupta, learned counsel on-record accepts notice on behalf of respondent No.1; and seeks time to file a reply.
11. Let reply be filed within 04 weeks; rejoinder thereto, if any, be filed within 03 weeks thereafter, after providing copies to the opposing counsel.
12. List on 13th July 2022.I.A. 17362/2021
13. By way of this application under section 151 of the Code of Civil Procedure 1908, the petitioner seeks an ad-interim, ex-parte stay of impugned arbitral award dated 29.05.2021 made by the learned Arbitral Tribunal.
14. Ms. Acharya fairly submits that the petitioner is ready and willing to deposit the awarded sum with upto-date interest as a condition for stay of the impugned arbitral award.
15. In view of the submissions made in O.M.P (COMM) No. 381/2021 as recorded above, and subject to the petitioner depositing the awarded sum with upto-date interest as offered, within 04 weeks, in the name of the Registrar General of this court, there shall be a stay of Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:30.03.2022 O.M.P. (COMM) 381/2021 Page 9 of 10 12:02:25 operation of the impugned arbitral award.The sum deposited shall be retained by the Registrar General in an interest bearing fixed deposit account in a nationalised bank, initially for a period of 06 months; which deposit shall be renewed thereafter for the same tenure from time-to-time, without any requirement for further directions of this court, till pendency of this matter.
16. Mr. Nandrajog submits that respondent No.1 be permitted to withdraw the amount to be deposited, subject to furnishing solvent surety or bank guarantee. This aspect would be considered upon respondent No. 1 making an appropriate application seeking such relief.
17. List on 13th July 2022.
ANUP JAIRAM BHAMBHANI, J.
MARCH 24, 2022 ds/uj Signature Not Verified Digitally Signed By:SUNITA RAWAT Signing Date:30.03.2022 O.M.P. (COMM) 381/2021 Page 10 of 10 12:02:25