Bangalore District Court
S L V Power Pvt Ltd vs Flovel Energy Pvt Ltd on 29 June, 2024
KABC170029862023
IN THE COURT OF LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE,
COMMERCIAL COURT, BENGALURU (CCH-84)
Present: Sri S. Sudindranath, LL.M., M.B.L.,
LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE
BENGALURU.
COM.A.P.No.201/2023
Dated on this 29th day of June 2024
Petitioner SLV Power Pvt. Ltd.,
Do.No.1-N-32-2731 (Part)
YMK Compound,
Ashok Nagar,
Mangaluru-575006
Represented by its Plant Manager
K.Rajendran,
S/o D. Krishnamurthy,
aged about 47 years.
(By Sri.Cyril Prasad Pais, Advocate)
// versus //
Respondents 1. Flovel Energy Pvt. Ltd.,
Corporate Office:
Vatika Mindscapes,
Suite No.101-A, Tower-B,
12/3, Mathura Road,
Faridabad-121003.
Haryana.
PROFORMA RESPONDENTS
2. Mr.M.L.Madaiah,
Presiding Arbitrator
#1598/A, 27th Cross, 29th Main,
BSK II Stage,
Bengaluru-560070.
2
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KABC170029862023
3. Dr.Wooday P Krishna,
Co-Arbitrator,
No.391/1, 8th Cross, 13th Main,
Rajmahal Extension,
Sadashivanagar,
Bengaluru-560080.
4. Mr.Vikas Mahendra,
Co-Arbitrator,
Advocate, Keystone Partners,
2nd Floor, 35/2,
Cunningham Road,
Bengaluru-560052.
(R1 by Sri.K.S.V, Advocate
R2-Arbitrator, R3&4-Co-Arbitrators)
Date of Institution of suit : 08/12/2023
Nature of the suit : Agreement relating to
immovable property
used exclusively in
trade and commerce
Date of commencement of :
recording of the evidence
Date on which the : 29/06/2024
Judgment was pronounced.
: Year Month/ Day/s
Total duration /s s
00 06 21
JUDGMENT
This is a petition filed by the respondent before the arbitral tribunal, under section 34 of the Arbitration and 3 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 Conciliation Act, challenging the award dated 14-09-2023, passed by the arbitral tribunal consisting of Respondent No. 2 to 4 herein, in Arbitration No. 1 of 2022.
2. The Respondent No. 1, who was the claimant before the arbitral tribunal, has entered appearance through counsel and filed detailed objections to the present petition. The notice to Respondent No. 2 to 4, who are the learned arbitrators, is dispensed with.
3. Thereafter, I have heard the arguments of learned senior counsel for Petitioner and heard the arguments of learned counsel for Respondent No. 1 and perused the records of the case.
4. The only point that arises for my consideration is :-
Whether the present petition deserves to be allowed and the impugned arbitral award dated 14-09-2023, passed by the arbitral tribunal consisting of Respondent No. 2 to 4 herein, in Arbitration No. 1 of 2022 deserves to be set aside under section 34 of the Arbitration and Conciliation Act? 4
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5. My answer to the above point is in the affirmative for the following :-
REASONS
6. The facts in brief are that, the case of the Respondent No. 1 herein [hereinafter referred to as the claimant], is that the claimant and petitioner herein [hereinafter referred to as the Respondent before Arbitral Tribunal or as Petitioner as context may warrant] entered into supply contract dated 20-5-2015, under which claimant was appointed by the petitioner herein to design, manufacture, test, supply and insure certain Electromechanical [E&M] equipment for Aniyur Mini Hydel Scheme near Gundubagilu, Neriya Village, Belthangdi Taluk, Mangalore District, Karnataka. The claimant manufactured and supplied the petitioner with electromechanical equipment and raised bills for Rs 25,06,52,511. Only part of the bill amount was cleared and there was huge balance payment. Under the contract, delayed payment attracted interest under clause 12.3 and clause 42.3. Since the petitioner did not clear the balance amount in spite of several reminders, ultimately the 5 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 parties entered into MOU dated 8-02-2018. Under this said MOU, the petitioner, while admitting its breach in clearing balance amount, undertook to pay sum of Rs 3,66,01,207 that is the outstanding bill amount to the claimant on or before 28-02-2018. The petitioner further admitted in the said MOU that accrued interest towards outstanding payment as on 31-12-2017 is Rs 2,48,30,815 and agreed to pay reduced / settled sum of Rs 1.50 crores by way of three installments of Rs 50 Lakhs each on 30-09-2018, 30-11-2018 and 31-01-2019 respectively towards the interest component. It is the case of the claimant that, the claimant agreed to settle the interest component which was Rs 2,48,30,815 as on 31-12-2017 for a smaller sum of Rs 1.50 crores on the basis of assurance of the petitioner that the claim would be honoured and installments would be paid on the due dates stated in the MOU. It is the further case of the claimant that petitioner paid the agreed amount of Rs 3,66,01,207 towards outstanding bill amount but committed breach in so far as payment of three installments of Rs 50,00,000 towards the interest component. This constrained the claimant to issue 6 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 email dated 14-08-2020 demanding payment of outstanding dues of Rs 1,57,09,105. This was followed by series of communication between the parties in which claimant demanded immediate settlement of the dues and petitioner while admitting the liability sought for time and gave fresh dates for settling the due amount. The petitioner failed to meet various deadlines but made delayed part payment of Rs 50,00,000 on 08-06-2021. Due to repeated defaults by the petitioner, the claimant was ultimately constrained to issue demand notice under section 8 of IBC dated 20-07-2021 for payment of Rs 1,07,09,105. On 03-08-2021, petitioner replied to the same and for the first time denied the liability to make payments on the pretext that claimant has failed to fulfill reciprocal obligations under the contract. However, in the said reply petitioner admitted to a sum of Rs Rs 98,25,510. This constrained the claimant to issue rejoinder notice under section 21 of Arbitration and Conciliation Act dated 21-10- 2021. In the said rejoinder, the claimant stated that in view of the mala-fide conduct of the petitioner, the claimant could no longer be bound by clause 3 of the MOU dated 08-02-2018 7 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 and consequently the claimant is entitled to rescind the settlement under the MOU and recover the entire due amount under the original supply contract i.e. Rs 2,48,30,815 as on 31-12-2017 along with interest thereon at 18% per annum. Thereby, in the rejoinder, the claimant laid claim to a sum of Rs 4.20 crores. Since the supply contract between the parties contained detailed provisions for dispute resolution mechanism as set out in clause 6.1 and 6.2 of the General Conditions of Contract, the claimant by the aforestated rejoinder dated 21-10-2021 proposed the name of Respondent No. 4 as the adjudicator and also stated that in the event petitioner is not agreeable for his appointment as adjudicator, Respondent No. 4 may be treated as claimant's nominee arbitrator in terms of clause 6.2.3 of the contract. The petitioner by its notice dated 19-11-2021 refused to appoint arbitrator. This constrained the claimant to approach the Chairman, Institute of Engineers, Bangalore by letter dated 28-12-2021 requesting him to appoint nominee arbitrator on behalf of petitioner and in response to the same, the said authority appointed respondent No. 3 herein as 8 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 arbitrator on behalf of the petitioner. Thereafter, the respondent No. 3 and 4 jointly appointed respondent No. 2 herein as the presiding arbitrator.
7. On the arbitral tribunal entering upon the reference, the claimant filed claim petition reiterating the above facts and laid claim to the following sums of money;
i. Amount due towards interest accrued as on 31-12-2017 towards unpaid invoices along with interest thereon at 18% per annum up to 31-03-2022 : Rs 4,03,40,075.
ii. Administrative cost of employees involved in recovery of dues from the respondent after execution of MOU : Rs 16,52,996 iii. Administrative cost of employees involved in pursuing recovery of dues from the respondent before execution of the MOU : Rs 12,48,960 iv. Pre-arbitration legal costs : Rs 2,02,400 v. Cost of arbitration : To be Quantified
8. The petitioner herein entered appearance before the Learned arbitral tribunal and filed statement of defence along with application under section 16 of the Arbitration and 9 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 Conciliation Act challenging the jurisdiction and constitution of arbitral tribunal.
9. By orders dated 1-8-2022, the arbitral tribunal dismissed the application under section 16 of the Act.
10. In the statement of defence filed by the petitioner herein, it was essentially contended that, there are no dues payable by the petitioner to the claimant under the supply contract dated 20-5-2015. It was contended that, there was delay, latches and negligence on the part of the claimant in supplying the equipment and installation as a result of which the commissioning of the project of petitioner was delayed by more than four years. In so far as the MOU dated 8-02-2018 is concerned, it was contended that it is an outcome of undue influence and fraud. Denying all other averments of the claim petition and reiterating the grounds taken in section 16 application that the arbitral tribunal is not properly constituted, the petitioner prayed for dismissal of the claims raised by the claimant.
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11. In addition, the petitioner raised a counterclaim on the ground that, due to deficiency in the service provided by the claimant, three turbine generators of the plant of petitioner could not be operated simultaneously resulting in loss of Rs 1.5 crores to the petitioner. On this ground, the petitioner raised counterclaim for loss of revenue till August 2021 of Rs 1.5 crores, for recovery of costs of proceedings and loss over investments including interest payable to the bank.
12. On the basis of the rival pleadings of both sides, the Arbitral Tribunal framed the following issues;
1) Whether the claimant proves that the present claims have been validly initiated?
2) Whether the respondent proves that claimant's claims are barred by limitation?
3) Whether the claimant proves that it is entitled to make claims under Supply Contract No. SLV/AMHS/E&M-1/2015 dated 20-5-2015 in the light of Memorandum of Understanding dated 8-02-2018?
4) Whether the claimant proves that it is entitled to receive sum of Rs 4,03,40,075 towards interest accrued on unpaid invoices?
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5) Whether the respondent proves that the claimant is not entitled to its claims on account of any deficiency or delays in the equipment supplied by the claimant?
6) Whether the claimant proves that it is entitled to receive a sum of Rs 16,52,996 towards administrative costs of employees involved in pursuing recovery of dues from the respondent after execution of MOU dated 8- 02-2018?
7) Whether the claimant proves that it is entitled to receive sum of Rs 12,48,960 towards administrative cost of employees involved in pursuing recovery of dues from the respondent before execution of the MOU dated 8-02-2018?
8) Whether the claimant proves that it is entitled to receive a sum of Rs 2,24,000 towards pre- arbitration legal costs necessitated on account of actions of the respondent?
9) Whether the claimant proves that it is entitled to interest at 18% per annum compounded annually?
10)Whether the parties are entitled to be awarded cost of present arbitration?
13. Thereafter, both sides have adduced evidence and marked documents before the arbitral tribunal. After closure 12 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 of evidence of both sides and after hearing the arguments of both sides, the arbitral tribunal has passed the impugned award awarding sum of Rs 3,75,44,030 to the claimant towards interest payable on delayed payments under the contract. The claim of claimant towards administrative cost of employees involved in pursuing recovery of dues before execution of MOU and after execution of MOU was rejected. Further, arbitral tribunal awarded Rs 45,07,701 to the claimant towards costs of arbitration proceedings. The arbitral tribunal also awarded interest at a rate of 8.54% per annum on all sums granted under the award till date of payment.
14. Aggrieved by the said arbitral award, the petitioner herein who was the respondent before the arbitral tribunal is before this court in this petition under Section 34 of Arbitration and Conciliation Act.
15. Learned Senior Counsel for Petitioner has principally urged 3 points before me. Firstly, he has reiterated the contentions of the section 16 application challenging the 13 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 jurisdiction and constitution of the arbitral tribunal and taken me through clause 6.1 and 6.2 of the contract between the parties and argued that the arbitral tribunal was not constituted in accordance with the contract between the parties and therefore did not have the jurisdiction to decide the dispute between the parties. Secondly, he argued that the dispute between the parties was not arbitrable since the dispute essentially arises out of the MOU dated 8.2.2018 which did not contain arbitration clause. Thirdly, he submitted that the award suffers from patent illegality apparent on the face of the record since the arbitral tribunal has awarded the claim based on earlier contract dated 20.5.2015 which had been superseded by MOU dated 8.2.2018. On these ground, he argued that impugned award is liable to be set aside.
16. Per contra, Learned Counsel for Respondent No. 1 argued that this court in a petition under section 34 of the Arbitration and Conciliation Act cannot sit in appeal over the award of the arbitral tribunal and the scope for interference 14 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 in a section 34 petition is limited to any one of the grounds enumerated in section 34 [2] and [2A] of the Act. He submitted that none of the grounds raised by the petitioner in the present petition fall within scope of section 34 of the Act and the grounds raised in the present petition runs like Statement of Defence filed before the Learned Arbitrators. Thus he submitted that the present petition is liable to be rejected.
17. Having considered the rival contentions and the material on record, at the outset, let me consider the first ground raised by Learned Senior Counsel for petitioner that the constitution of the arbitral tribunal was not in accordance with the arbitration clause contained in the contract between the parties. In this regard, at the outset, it is to be noted that, this contention was raised at the time of filing Statement of Defence before the arbitral tribunal by filing application under section 16 of the Act challenging the jurisdiction of the arbitral tribunal. As already noted Supra, by a detailed order dated 1-8-2022, the Learned Arbitral Tribunal rejected the 15 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 section 16 application. At one stage, a contention was raised by Learned Counsel for Respondent No. 1 that the order rejecting the section 16 application has attained finality. However, Learned Counsel for Respondent No. 1 in his subsequent arguments fairly conceded that, under section 16 [6] of the Act, a party aggrieved by rejection of section 16 application which culminates in award being passed against such a party may challenge constitution and jurisdiction of the arbitral tribunal under section 34 of the Act. However, he submitted that, in the present petition, no proper grounds are raised challenging the constitution and jurisdiction of arbitral tribunal. However, on perusal of the grounds raised in the present petition at ground No. 12 at page 54 of the petition, specific ground is raised that constitution of the arbitral tribunal is illegal, unlawful and contrary to clause 6.1 and 6.2 of the supply contract dated 20-5-2015. Therefore, it is clear that, at appropriate stage, petitioner herein had challenged the jurisdiction and constitution of arbitral tribunal by filing section 16 application, which was rejected by orders dated 1-8-2022. Thereafter, under the scheme of 16 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 the Arbitration and Conciliation Act, such finding of arbitral tribunal on its own jurisdiction can be challenged only in section 34 petition. Accordingly, in the present petition, grounds have been raised contending that constitution of the arbitral tribunal was not in accordance with the contract between the parties. It is to be noted that, under section 34 [2] [a] [v] of the Act, one of the grounds which can be taken in a section 34 petition is that composition of the arbitral tribunal was not in accordance with agreement between the parties. Therefore, this ground regarding constitution of the arbitral tribunal is validly raised in the present petition and has to be considered by this court.
18. In order to consider this ground, it is necessary to refer to clause 6.1 and 6.2 of the contract at Ex. C1 which deal with "settlement of disputes". For ready reference the relevant clauses are extracted below;
6.1 Adjudicator 6.1.1 : If any dispute of any kind whatsoever shall arise between the employer and the Contractor in connection with or arising out of the Contract including without prejudice to the generality of the 17 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 foregoing, any question regarding its existence, validity or termination, or the execution of the Facilities--whether during the progress of the Facilities or after their completion and whether before or after the termination, abandonment or breach of the Contract--the parties shall seek to resolve any such dispute or difference by mutual consultation. If the parties fail to resolve such a dispute or difference by mutual consultation, then the dispute shall be referred in writing by either party to the Adjudicator, with a copy to the other party.
6.1.2 : The Adjudicator shall give his decision in writing to both parties within twenty-eight (28) days of a dispute being referred to him. If the Adjudicator has done so, and no notice of intention to commence arbitration has been given by either the Employer or the Contractor within fifty-six (56) days of such reference, the decision shall become final and binding upon the Employer and the Contractor. Any decision that has become final and binding shall be implemented by the parties forthwith.
6.1.3 : The Adjudicator shall be paid a daily fee at the rate of Rs. 6000.00 plus reasonable expenditures incurred in the execution of his duties as Adjudicator, and these costs shall be divided equally between the Employer and the Contractor. 6.1.4 Should the Adjudicator resign or die, or should the Employer and the Contractor agree that the Adjudicator is not fulfilling his functions in accordance with the provisions of the Contract, a new Adjudicator shall be jointly appointed by the Employer and the Contractor. Failing agreement between the two within twenty eight (28) days, the new Adjudicator shall be appointed at the request of either party by the 18 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 Appointing Authority, i.e., The Chairman, Institution of Engineers, Bangalore.
6.2 Arbitration 6.2.1 If either the Employer or the Contractor is dissatisfied with the Adjudicator's decision, or if the Adjudicator fails to give a decision within twenty- eight (28) days of a dispute being referred to him, then either the Employer or the Contractor may, within fifty-six (56) days of such reference, give notice to the other party, with a copy for information to the Adjudicator, of his intention to commence arbitration, as hereinafter provided, as to the matter in dispute, and no arbitration in respect of this matter may be commenced unless such notice is given.
6.2.2 Any dispute in respect of which notice of intention to commence arbitration has been given, in accordance with GCC Sub-Clause 6.2.1, shall be finally settled by arbitration. Arbitration may be commenced prior to or after completion of the Facilities.
6.2.3 Any dispute, controversy or claim arising out of, or relating to this contract or breach, termination or invalidity there of which has not become final and binding pursuant to G.C.C. Clause 6.1.2, shall be settled by arbitration by arbitral tribunal as under.
The arbitral tribunal shall have full power to open- up, review and revise any decision, opinion, instruction, determination, certificate or valuation of the Project Manager and any Recommendation(s) of the Adjudicator related to the dispute.
(i ) A dispute with an Indian Contractor shall be finally settled by arbitration in accordance with the Arbitration & Conciliation Act, 1996, or any statutory amendment thereof.
19
CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 The arbitral tribunal shall consist of three arbitrators, one each to be appointed by the Employer and the Contractor. The third Arbitrator shall be chosen by the two Arbitrators so appointed by the Parties and shall act as presiding arbitrator. In case of failure of the two arbitrators, appointed by the parties to reach upon a consensus within a period of 30 days from the appointment of the arbitrator appointed subsequently, the Presiding arbitrator shall be appointed by the Chairman of the Institution of Engineers, Bangalore. For the purpose of this sub-clause, the term "Indian Contractor" means a Contractor who is registered in India and is a juristic person created under Indian law as well as a joint venture between such a Contractor and a Foreign Contractor.
(ii) In the case of a dispute with a foreign Contractor, .......... (not extracted since not relevant)
(iii) Neither party shall be limited in the proceedings before such tribunal to the evidence or arguments before the Arbitrator for the purpose of obtaining its Recommendation(s) pursuant to Sub-Clause 6.2.2. No recommendation shall disqualify any Adjudicator from being called as a witness and giving evidence before the arbitrator(s) on any matter whatsoever relevant to the dispute.
(iv) Arbitration may be commenced prior to or after completion of the Works, provided that the obligations of the Employer, the Project Manager, the Contractor and the Adjudicator shall not be altered by reason of the arbitration being conducted during the progress of the Works.
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(v) If one of the parties fail to appoint its arbitrator in pursuance of Sub-Clause
(i) and (ii) above, within 30 days after receipt of the notice of the appointment of its arbitrator by the other party, then the Chairman of the Institution of Engineers, Bangalore, both in foreign Contractors as well as Indian Contractors shall appoint the arbitrator. A certified copy of the order of the Chairman of the Institution of Engineers (India) making such an appointment shall be furnished to each of the parties.
(vi) Arbitration proceedings shall be held at Bangalore, India, and the language of the arbitration proceedings and that of all documents and communicntions betwccn thc portics shall bc in English.
(vii) The decision of the majority of arbitrators shall be final and binding upon both parties. The cost and expenses or Arbitration proceedings will be paid as determined by the arbitral tribunal. However, the expenses incurred by each party in connection with the preparation, presentation, etc., of its proceedings as also the fees and expenses paid by the arbitrator appointed by such party or on its behalf shall be borne by each party itself
(viii) The arbitrator(s) shall give reasoned award.
(Emphasis Supplied)
19. Based on the above clauses of the contract between the parties, the contention of the petitioner against the 21 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 constitution of the arbitral tribunal is twofold. Firstly, it is contended that clause 6.1 contemplates adjudication as a prelude to arbitration and therefore, without going through the process of adjudication, directly referring the dispute to arbitration is a violation of the contract and therefore, without first appointing an adjudicator and getting the dispute adjudicated by the adjudicator, constitution of the arbitral tribunal directly is invalid. In this regard, the contention of the petitioner is that, if the parties could not agree upon adjudicator, the adjudicator ought to have been appointed by the chairman, Institution of Engineers, Bangalore under clause 6.1.4 and having not got the adjudicator appointed, directly constituting the arbitral tribunal is contrary to the contract.
20. This contention has been rightly rejected by the arbitral tribunal because on plain reading of clause 6.1 of the contract extracted supra, it is clear that clause 6.1.4 contemplates appointment of new adjudicator if the original adjudicator resigns or dies or if the parties agree that the 22 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 adjudicator is not fulfilling his functions in accordance with the provisions of the contract. Clause 6.1 nowhere contemplates appointment of the original adjudicator. Instead, clause 6.1.1 speaks about dispute being referred in writing by either party to adjudicator as if adjudicator is named in the contract, but nowhere in the contract, adjudicator is named. Therefore, the consequence is that the contract does not name the adjudicator nor does it provide for appointment of adjudicator. It only provides for appointment of new adjudicator if the original adjudicator resigns or dies or is not fulfilling his functions. Therefore, in essence, if the parties mutually fail to agree upon an adjudicator, then the consequence is that, the contract does not provide for any mechanism for appointment of adjudicator. In the case on hand, it is forthcoming from the records that initially by the letter dated 21-10-2021, the claimant had proposed the name of Respondent No. 4 to be appointed as adjudicator and also stated that, in the alternative, if petitioner is not agreeable to the same, to treat Respondent No. 4 as claimant's nominee- arbitrator. The petitioner has not agreed for appointment of 23 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 Respondent No. 4 as adjudicator. Such being the case, when the parties have not agreed upon adjudicator and when the contract does not provide for mechanism for appointment of original adjudicator nor does the contract name the adjudicator, it follows that, going through adjudication process as contemplated under clause 6.1 of the contract is rendered impossible. The law is settled that the court should try to give effect to the arbitration clause rather than defeat the arbitration clause by insisting upon a prelude to arbitration which is rendered impossible. Therefore, when the adjudication process was rendered impossible due to failure of the parties to agree upon adjudicator, it follows that the arbitration clause should not be defeated due to failure of the parties to undergo adjudication. Therefore, the Learned Arbitral Tribunal came to the correct conclusion in holding that, merely because the process of adjudication has not been undergone, will not defeat the arbitration clause and will not render the reference of dispute to arbitration illegal or contrary to the contract.
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21. Even otherwise, it is to be noted that, clause 6.2.3 of the contract extracted supra provides that, any dispute which has not become final and binding pursuant to clause 6.1.2 shall be settled by arbitration. In order to attract this clause, it is not necessary that adjudicator should have been appointed and should have given his decision and thereafter, intention of commencing arbitration should have been given by either party. A dispute will become final and binding on the parties only where adjudicator is appointed and gives his decision in writing within 28 days and no notice of intention to commence arbitration is given within 56 days. However, a dispute may be said to have become "not final" even where the adjudicator is never appointed and process of adjudication is never undergone. In other words, in order to attract clause 6.2.3 all that is necessary is that the dispute has not become final and binding as provided in 6.1.2. Such a scenario may arise even where process of adjudication has not been undergone. Therefore, clause 6.2.3 contemplates arbitration even without going through the prelude of adjudication. Therefore, viewed from any angle, the finding of 25 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 the Learned arbitral tribunal rejecting this contention of petitioner does not call for interference in this petition.
22. The second contention raised by the petitioner regarding constitution of the arbitral tribunal is that, on failure of petitioner to appoint its nominee arbitrator, the nominee arbitrator of petitioner ought to have been appointed by approaching Hon'ble High Court under section 11 of the Act and not by approaching Institution of Engineers, Karnataka State Centre because the appointing authority as per the contract is Institution of Engineers, Bangalore. In this regard, at paragraph 71 of the Orders of the Arbitral Tribunal on section 16 application dated 1-08-2022, the arbitral tribunal has noted that there is no institution bearing the name "Institution of Engineers, Bangalore" and what exists is only one organization by name "Institution of Engineers, India"
which has various centres and local offices which includes an office in Bangalore which is referred to as "Institution of Engineers, Karnataka State Centre" and it is the chairman of Institution of Engineers, Karnataka State Centre who has 26 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 appointed Respondent No. 3 as the nominee arbitrator of petitioner.
23. This is a factual finding of the arbitral tribunal that the appointing authority named in the contract namely Institution of Engineers, Bangalore is not in existence. The arbitration clause has to be interpreted in a manner so as to give effect to the intention of the parties to refer the disputes to arbitration and the approach should not be to defeat the arbitration clause. Such being the case, the arbitral tribunal was perfectly justified in reaching the conclusion that the appointing authority referred to as Institution of Engineers, Bangalore should be read as "Institution of Engineers, Karnataka State Centre situated at Bangalore" since that is the only organization in existence which meets the description of appointing authority stated in the contract. Therefore, this contention of the petitioner to challenge the constitution of the arbitral tribunal also cannot be accepted.
24. A connected contention is that, whereas the contract requires the nominee arbitrator to be appointed by the 27 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 Bangalore Centre, in this case, the arbitrator is in fact appointed by the Kolkata Centre. To appreciate this contention, it is necessary to look into the letter dated 3-02- 2022 marked as Ex. C-12 issued by the Chairman of Institution of Engineers, Karnataka State Centre situated at Bangalore. In the said letter issued to the claimant company, it is stated as follows;
"With reference to communication of your organization to the Chairman of Institution of Engineers, India, Karnataka State Centre requesting for appointment of an arbitrator, the same was communicated to our headquarters on 1-01-2022 by our Hon'ble Secretary.
The Secretary and Director General of the Institution of Engineers, India, Kolkata, in turn has intimated us appointing Dr. Wooday P. Krishna, No. 391/1, 8th Cross, 13th Main, Rajmahal Villas Extension, Sadashivanagar, Bangalore 560080 as the arbitrator.
As per Clause 6.2 of the contract, I being the Chairman of the Institution of Engineers, India, Karnataka State Centre has been directed by our Headquarters to issue Order of Appointment of an Arbitrator.
I hereby issue Order of Appointment of an Arbitrator on behalf of M/s. S.L.V. Power Pvt. Ltd. in the dispute between M/s. Flovel Energy Pvt. Ltd. and M/s. S.L.V. Power Pvt. Ltd. arising out of Supply Contract dated 20-5-2015"28
CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023
25. Relying on this letter, Learned Senior Counsel for Petitioner argued that, as per the contract, the authority to appoint the arbitrator is vested with the Chairman of the Institution of Engineers, Bangalore and even assuming that reference to Institution of Engineers, Bangalore should be read as reference to Institution of Engineers, India, Karnataka State Centre at least it is the Chairman of Karnataka State Centre who should have appointed the arbitrator, whereas, on plain reading of the letter it is evident that, the Chairman of Karnataka State Centre has forwarded the request letter to the headquarters situated at Kolkata and on the instructions of the Secretary and Director General of the Institution of Engineers, India situated at Kolkata, the Chairman of Karnataka State Centre has issued an order appointing Respondent No. 3 as arbitrator. Thereby he argued that, whereas the contract requires the Chairman of Karnataka State Centre to appoint arbitrator, in the case on hand the arbitrator is in fact appointed by Secretary and Director General of Kolkata Centre. Thereby he argued that, the proper authority has not appointed the arbitrator and therefore the 29 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 appointment is contrary to the contract which renders the Constitution of the Arbitral Tribunal illegal.
26. No doubt the letter at Ex. C-12 makes it clear that, the discretion in appointing the arbitrator has been exercised by the Kolkata Centre and not by Karnataka State Centre which appears to be contrary to the contract which requires appointment by the Chairman of Karnataka State Centre. However, it is to be noted that the claimant has rightly approached the Karnataka State Centre, seeking appointment of arbitrator. Due to internal procedure followed by Institution of Engineers, the Chairman of Karnataka State Centre has not himself made the appointment of arbitrator but instead has referred the same to Headquarters at Kolkata and on the instructions of Headquarters, Respondent No. 3 is appointed as arbitrator. Anyhow, in the last paragraph of Ex. C-12 it is clear that, the order of appointment of arbitrator is issued by Chairman of Karnataka State Centre. Therefore, in essence the requirement that appointment should be by Chairman of Karnataka State Centre is satisfied and therefore, this ground 30 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 cannot raised by Petitioner cannot be accepted. Therefore, none of the grounds raised under Section 32 [2] [a] [v] can be accepted and therefore I reject the contention of the petitioner challenging the jurisdiction and constitution of the arbitral tribunal.
27. The next contention raised by Learned Senior Counsel for Petitioner is under Section 32 [2] [a] [iv] of the Act that, the arbitral tribunal has dealt with matters which were not arbitrable since the arbitral tribunal has essentially decided dispute arising between the parties under MOU dated 8-02- 2018 which did not contain arbitration clause. In this regard it is to be noted that, admittedly the original contract between the parties which is the supply contract dated 20-5-2015 contains arbitration clause. The MOU was entered into in order to settle the amount payable by petitioner to the claimant under the supply contract. On reading of the MOU, it is clear that the MOU was entered into in order to quantify what is the outstanding amount and interest payable by petitioner to the claimant under the original supply contract 31 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 dated 20-5-2015. Therefore, any dispute arising out of the MOU would be ultimately traceable to the original supply contract which admittedly contains arbitration clause. Therefore, even accepting the contention of petitioner that, what was referred to arbitration was a dispute arising out of MOU which did not contain arbitration clause, even then, the said dispute would be ultimately traceable to the original contract dated 20-5-2015 which contained arbitration clause and therefore, it cannot be said that, subject matter of the award was not an arbitrable dispute. Therefore, this contention of the petitioner also cannot be accepted.
28. The next contention urged by the Learned Senior Counsel for Petitioner is that, the award is in conflict with public policy of India since it is perverse and the award also suffers from patent illegality appearing on the face of the records. In other words, these grounds are raised under section 34 [2] [b] [ii] and section 34 [2A] of the Act. In this regard, it is to be noted that, Hon'ble Apex Court has laid down as to when an award can be interfered under Section 34 32 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 [2A] of the Act on the ground of patent illegality, in the case of Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ) 213 : 2019 SCC OnLine SC 677 at page 171, as follows;
41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse. (Emphasis Supplied)
29. This contention of the petitioner is based on the fact that, the award has granted relief to the claimant on the basis of amount due under the original supply contract dated 20-5- 2015 although even as per the case of the claimant there is a subsequent MOU entered into between the parties in which 33 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 claimant has agreed to receive lesser amount. Thereby, petitioner contends that MOU operates as novation of the contract under Section 62 of Contract Act and therefore, once MOU was entered into, the claimant could only claim sums due under the MOU and could not rescind the MOU and claim sums due under the original contract dated 20-5-2015.
30. Per contra, the contention of the claimant is that, the arbitral tribunal has correctly decided this question by following the law laid down by Hon'ble Calcutta High Court. Before considering this contention, one preliminary contention of Learned Counsel for claimant may be considered that, this ground is not raised in the present petition. It is not possible to accept this contention, since, at paragraph 49 of the grounds of the present petition at page 73, it is specifically contended that, "the key question that arose is whether subsequent to the execution of the instrument the claimant was at liberty to rescind the MOU and revive its claims under the main contract, the said view expressed by the learned arbitrators is erroneous, suffers 34 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 from non-application of mind and liable to be interfered with." Therefore, specifically ground has been raised in the present petition that arbitral tribunal committed error in holding that the claimant was at liberty to rescind the MOU and revive the claims under the main contract. Therefore, this preliminary contention that, since, the ground is not raised the said contention cannot be considered is unacceptable.
31. In considering this contention, it is to be noted that, even as per the case of the claimant, as set out in the Statement of Claim, the parties had entered into the original supply contract dated 20-5-2015 under which the claimant was appointed to design, manufacture, test, supply, transport and insure certain E&M equipment which were duly manufactured and supplied by the claimant and accordingly the claimant raised bill of Rs. 25,06,52,511. Only part of the bill amount was cleared by petitioner and there was repeated correspondence between the parties under which claimant sought for payment of the balance amount along with interest. It is further specifically pleaded at paragraph 12 of 35 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 the Statement of Claims that, ultimately the parties entered into MOU dated 8-02-2018 under which the parties revised the timelines for payments in the manner set forth therein and in particular the petitioner [Respondent before Arbitral Tribunal] while admitting to its breach represented to make payment of Rs. 3,66,01,207 by 28-02-2018 and further admitted that interest amount due as of 31-12-2017 is Rs. 2,48,30,815 and agreed to settle the said amount by payment of Rs. 1.50 crores by way of three instalments of Rs. 50 lakhs each on 30-9-2018, 30-11-2018 and 31-1-2019 respectively. It is admitted at paragraph 14 of the Statement of Claims that petitioner has paid the outstanding bill amount of Rs. Rs. 3,66,01,207. The grievance of the claimant is that petitioner has defaulted in payment of the interest component which was reduced / settled to Rs. 1.50 crores in the MOU and out of the said Rs. 1.50 crores, the petitioner has only paid Rs. 50 lakhs belatedly on 08-06-2021 [paragraph 26 of the Claim Statement]. It is to be noted that, in the Statement of Defence filed by the petitioner herein, a contention was raised that, the said MOU is tainted by fraud and undue 36 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 influence. However, the Arbitral Tribunal has recorded the finding in the award at paragraph 133 that the petitioner's witness named RW1 has stated in cross examination that petitioner willingly entered into MOU. Therefore, it is an admitted position of fact that MOU dated 8-02-2018 was duly entered into between the parties. It is further admitted that, principal amount of Rs. 3,66,01,207/= as agreed under the MOU was duly paid. But in respect of interest component [which was reduced from Rs. 2,48,30,815/= as on 31-12-2017 to Rs. 1.50 crores payable by 3 installments of Rs. 50 Lakhs payable on 30-9-2018, 30-11-2018 and 31-1-2019] there was default in payment of these installments and only one installment of Rs. 50 lakhs was paid belatedly on 8-06-2021.
32. Therefore, the most important question which was before the arbitral tribunal was whether the claimant could claim only the amount of Rs. 1 crore which is the settled amount as per the MOU along with interest or whether the claimant could resile / rescind from the MOU and revert to 37 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 the original contract and claim the sum of Rs. 2,48,30,815 along with interest from 31-12-2017.
33. According to the petitioner, by entering into the MOU, there was novation of the contract and therefore any claim raised could be only on the basis of the MOU and not by reverting to the original contract. Whereas, the stand of the claimant is that, once there was breach of the terms of the MOU by the petitioner, the claimant could rescind the MOU and revert to the original contract and claim under the original contract.
34. The arbitral tribunal has addressed this important question while answering Issue No. 3 i.e., whether the claimant proves that it is entitled to make claims under the Supply Contract dated 20-5-2015 in the light of Memorandum of Understanding dated 8-02-2018, from paragraph 112 to 119 of the award.
35. At paragraph 112 and 113 of the award, the arbitral tribunal addresses the rival contentions of both sides. At paragraph 114, the arbitral tribunal has observed that MOU 38 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 was an instrument executed to settle dues that arose under the original contract. Then, the arbitral tribunal observes that the key question that arises is whether subsequent to the execution of such an instrument, the claimant was at liberty to rescind the MOU and revive the claims under the main contract. Then, the arbitral tribunal has relied upon the rulings of Calcutta High Court in Phani Bhushan Gupta v. Mira Roy - 1986 SCC Online Cal 73 and Manohur Koyal v. Thakur Das Nashkar - (1888) ILR 15 Cal 319. Arbitral Tribunal then refers to ruling of Kerala High Court in M. Farisa Begum v. Syed M. Fatima - 1990 SCC Online Ker
116. Then, at paragraph 117, the arbitral tribunal observes that, in the case on hand, it is an admitted fact that, payment under the MOU were not done within the timelines and in these circumstances, the claimant vide its letter dated 21-10- 2021, rescinded the MOU and revived its claims under the contract and the decision of the Calcutta High Court and Kerala High Court suggests that this course of action was available to the claimant. Thereafter, the tribunal rejects certain contentions raised by the petitioner and concludes 39 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 ultimately at paragraph 119 that the claimant is entitled to make claims under the supply contract, notwithstanding execution of MOU.
36. Therefore, the crux of reasoning of the arbitral tribunal appears to be that, since, the payments under the MOU were not honoured by the petitioner, the claimant was entitled to rescind the MOU and revive the claims under the original contract, which has been done by the claimant in its letter dated 21-10-2021 and for arriving at this conclusion, the arbitral tribunal has relied upon two rulings of the Calcutta High Court and one ruling of the Kerala High Court referred to at paragraph 115 and 116 of the award.
37. Therefore, let me first deal with the said rulings and consider whether the law laid down in the said rulings is applicable to the case on hand. To support the stand taken by the claimant, the earliest ruling relied on is the ruling of the Calcutta High Court in Manohur Koyal v. Thakur Das Nashkar - (1888) ILR 15 Cal 319. The said ruling is available at page 252 of the Compilation of Rulings produced 40 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 by the Learned Counsel for Claimant [Respondent No. 1 herein]. The facts of the case are narrated at paragraph 2 of the said ruling, which discloses that in the said case, instead of paying Rs. 801 along with interest, the defendant represented to the plaintiff that he will pay cash over Rs. 400 and execute Kishti-Bundi bond for Rs. 701. The plaintiff accepted these terms, but defendant failed to carry them out i.e. he neither paid Rs. 400 nor executed Kishti-Bundi bond. Therefore, the plaintiff brought action on the basis of the original contract. In the course of the said judgment, it is observed that, Section 63 of the Contract Act not only modifies but is in direct antagonism to the law in England. It is observed that, it has been the law in England for nearly 300 years that, if A owes B Rs. 5000 and B consents to take Rs. 2000 in payment of the debt, that is what is called in law nudum factum and B after taking the Rs. 2000 can subsequently bring action for the unpaid Rs. 3000. The law in India by virtue of Section 63 of the Contract Act is different. Then the Hon'ble Division Bench of the Calcutta High Court observes as follows;
41
CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 "We do not think that the plaintiff ever intended to accept the naked promise to pay Rs. 400 and to give a bond for Rs. 701. The defendant has not given satisfaction. He has not paid the money. He has not tendered the bond. The question is, what were the rights of the parties under these circumstances? It seems to us perfectly clear that the parties were relegated to their rights and liabilities under the original contract and that the plaintiff, upon breach by the defendant of the terms which he has made and upon the non-performance by him of the satisfaction which he had promised to give, was relegated to his rights under the old contract and was entitled to bring the suit on the basis of the old bond and to recover the money which he claimed."
(Emphasis Supplied)
38. Without appreciating the factual matrix of the case and the factual background in which the above observations were made by the Hon'ble Calcutta High Court, the arbitral tribunal has relied upon the concluding observations of Hon'ble Calcutta High Court highlighted by me Supra to hold that, since, the terms of the MOU were not complied by the petitioner, the claimant had the right to rescind the MOU and revert to the original claims under the original contract. The Hon'ble Calcutta High Court made the above observations in 42 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 the context of the fact that, there was only a "naked promise"
[expression used by Hon'ble Calcutta High Court] by the defendant to pay Rs. 400 cash and to execute bond, which were never complied with. However, in the case on hand, the parties have entered into formal MOU and under the MOU, the principal amount has been admittedly paid and out of the interest amount agreed of Rs. 1.50 crores, Rs. 50 lakhs has been paid, although belatedly. Therefore, this is not a case where there was only a "naked promise" without any further acts done in pursuance of the same, but the amendment / novation of the original contract was formally entered into by the parties in the form of MOU dated 8-2-2018 and acting upon the MOU, the petitioner had paid the principal amount due as well as Rs. 50 lakhs of the interest component. Therefore, the above observations of the Calcutta High Court having been made in a totally different context and fact situation could not have been relied upon by the arbitral tribunal to arrive at the conclusion that, in the present case, the claimant could rescind the MOU and revert to the original claims.43
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39. Next, the arbitral tribunal has relied upon another ruling of Calcutta High Court in Phani Bhushan Gupta v. Mira Roy - 1986 SCC Online Cal 73. The said ruling is easily distinguishable since the crux of the reasoning in the said ruling is contained at paragraph 12 which lays down that, since the first contract was compromise which had received the imprimatur of the court, there could be no novation of such contract. In the said case, a compromise was entered into by the parties before the court and when execution petition was filed to execute the compromise decree, it was contended by JDR that the contract as recorded in the compromise has been replaced by a subsequent contract. In these circumstances, the Hon'ble Calcutta High Court held that, since the earlier contract had received the imprimatur of the court, there is no question of novation of the same. In the case on hand, the facts are totally different, in that, the original contract is not a compromise entered before the court and therefore the parties were at liberty to amend / novate the contract by subsequent MOU. Therefore, the Arbitral Tribunal committed error in 44 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 relying upon the said ruling of Calcutta High Court when the facts of the case were totally different.
40. Finally, Arbitral Tribunal has relied upon the Kerala High Court judgment in M. Farisa Begum v. Syed M. Fatima
- 1990 SCC Online Ker 116. That was a case where, at the time of partition, it was agreed that defendant would pay Rs. 13,000 to plaintiff towards owelty. Thereafter, the parties executed agreement agreeing to mutually exchange specific portions of their respective shares in lieu of payment of Rs. 13,000 by the defendant. At paragraph 4 of the said ruling, the Hon'ble Kerala High Court has observed that the question to be considered is whether, in view of the later agreement, plaintiff has lost his right of owelty. It is observed that, there was specific stipulation in the agreement that only on defendant's execution of the exchange deed, the liability of payment of Rs. 13,000 will be discharged, which was not considered by the trial court. Therefore, it is clear that, in the said case before the Kerala High Court, there was a specific term in the subsequent agreement that the liability under the 45 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 earlier agreement will be discharged only on fulfilling the obligations entered into under the subsequent agreement. It is on this basis that, it was held that, due to non-performance of the obligation under the subsequent agreement, the claim under the original contract will revive.
41. However, in the case on hand, if the MOU dated 8-2- 2018 at Ex. C-4 is closely analysed, it is seen that, there is absolutely no term in the said MOU that, in case the payment is not made by the petitioner on the due dates, the claims under the original contract will be revived or that the claimant is at liberty to claim the amounts under the original contract. In the absence of this vital clause in the MOU, this is a case where the parties have agreed to settle for a lesser amount without any stipulation that, in case the lesser amount is not paid on the due dates, the claimant can claim the larger amount under the original contract. Therefore, there has been a novation of the contract under Section 62 of the Indian Contract Act. For ready reference, Section 62 is extracted below;
46
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62. Effect of novation, rescission and alteration of contract.--If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.
42. Therefore, present case is a case where in terms of Section 62 of the Contract Act, the parties have agreed to substitute a new contract in place of the original contract and in such a case the original contract need not be performed.
43. It is crucial to note that, even as per the claim statement at Paragraph 28, even in the notice dated 20-7- 2021, the claimant only claimed Rs.1,07,09,105 i.e. Rs.1 crore under clause 3 of the MOU and other amounts. Therefore, it is important to note that, as per the MOU, the three instalments of Rs.50 lakhs was payable on 30-9-2018, 30-11-2018 and 31-1-2019. Whereas, as late as in the year 2021, the claimant understood that, it can only make claim under the MOU and had claimed the sum due under the MOU and not reverted to the claim under the original contract. This shows that, the parties also understood that, the MOU supersedes the claims under the original contract 47 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 and therefore, although there was breach of the terms of the MOU in 2019 itself, even in the year 2021, the claimant raised claims in terms of the MOU. It is only subsequently in the notice dated 21-10-2021 that the claimant for first time sought to rescind the MOU and revert to the original claims. This could not have been done when there was novation of the original contract and it was replaced by the terms of the MOU. In conclusion, I am of the view that, the finding of the arbitral tribunal that the claimant could rescind the MOU due to breach of the MOU by the petitioner and the claimant could revert back to the original claims under the original contract suffers from patent illegality and error appearing on the face of the record for the following reasons.
44. Firstly, the rulings relied upon by the arbitral tribunal are inapplicable to the facts of the present case and without appreciating the fact situation in which the said rulings were rendered, the arbitral tribunal has committed error in relying upon stray observations in the judgments to conclude that, due to breach of the MOU, the claimant could revert to the original claims.
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45. Secondly, the arbitral tribunal has failed to take note of two important points. Firstly, the arbitral tribunal has failed to note that MOU does not contain any clause that, in case there is breach of the terms of the MOU, the original claims under the original contract will revive. Instead, the MOU operates as novation of original contract.
46. Thirdly, the arbitral tribunal has failed to note that, admittedly as per the averments of the claim petition itself, even after breach of the MOU by the petitioner, as late as in the year 2021, in the notice dated 20-07-2021, the claimant continued to assert claims under the MOU. This shows that, parties also understood that the original contract has been novated by the MOU and once MOU has been executed, it is only the claim under the MOU that can be raised and not under the original contract.
47. For these reasons, the finding of the arbitral tribunal that, claimant could rescind the MOU and make claim under the original supply contract is arrived at by ignoring important material / evidence on record and by ignoring 49 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 section 62 of the Contract Act and therefore, the said finding suffers from patent illegality appearing on face of the record as per law laid down by Hon'ble Apex Court at Paragraph 41 of Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 and therefore, is liable to be set aside under Section 34 of the Act.
48. Learned Counsel for Respondent No. 1 relied upon the ruling of Hon'ble Madras High Court in Dr. Sasidaran v. Indian Cements Capital Ltd. reported in 2010 SCC Online Madras 6038 to contend that, on the point of novation, this court should not interfere under section 34 of the Act since this court does not sit as an appellate court to re-appreciate the evidence and just because there is possibility to take another view of the matter is not a ground for interference. However, the Hon'ble Madras High Court has itself observed that, there cannot be interference only where the arbitrator has duly considered preponderance of probabilities of evidence in a proper manner and same is not illegal or perverse. However, I have already recorded the finding that, the conclusion of the arbitral tribunal suffers 50 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 from patent illegality by ignoring material on record which is already highlighted. Therefore, this ruling of Hon'ble Madras High Court will not help the claimant in present case. Accordingly, I am of the view that the finding of the arbitral tribunal that, in spite of entering into MOU, the claimant could raise claims under the original contract by rescinding the MOU calls for interference in this petition.
49. Before concluding, let me briefly deal with two other contentions raised by the petitioner. These contentions were not urged in the arguments of Learned Senior Counsel for Petitioner but have been raised in the petition and therefore, let me briefly deal with the same. One ground raised in the petition is that, arbitral tribunal committed error in failing to appreciate that the claim of the claimant was barred by limitation. This contention cannot be accepted for the simple reason that, admittedly, as late as on 8-06-2021, part payment of Rs 50 lakhs was made by the petitioner to the claimant which extends the period of limitation under Section 19 of the Limitation Act and therefore, it cannot be held that 51 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 the claim was barred by limitation. Another contention raised is that the arbitral tribunal has committed patent illegality by rejecting the counterclaim raised by the petitioner only on the ground that petitioner has not deposited the costs of arbitration. However, if the arbitral award is closely analysed, it is seen that the arbitral tribunal has, at paragraph 144 of the award, considered the contention of the petitioner that three turbine generators do not operate simultaneously and therefore the equipment supplied by the claimant is not functioning efficiently. At paragraph 144 to 147, the arbitral tribunal has discussed the evidence of expert witness examined by the petitioner namely RW2 and ultimately concluded that his evidence is not reliable. And ultimately, at paragraph 150, the arbitral tribunal has observed that the petitioner has not presented tribunal with any convincing evidence to prove that the equipment supplied by the claimant is unable to generate peak output. Therefore, it is clear that the arbitral tribunal has considered on merits the question whether there was any defect in the equipment supplied by the claimant as a result of which the three 52 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 turbine generators could not operate simultaneously and concluded that same is not proved by the petitioner. It is to be noted that, the ground on which the petitioner has raised the counterclaim is a loss of profit due to the three turbine generators not operating simultaneously. And when the arbitral tribunal has elaborately dealt with this aspect of the matter and concluded that same is not proved by the petitioner, it cannot be said that the arbitral tribunal has rejected the counterclaim only for non-payment of arbitral fees. Although various other grounds are raised in the petition, they are all in the nature of re-appreciating the evidence and therefore cannot be considered.
50. In view of the above discussion, I hold that the present petition is entitled to succeed on the sole ground that the conclusion of the arbitral tribunal that the claimant could rescind the MOU and revert to the original claims suffers from patent illegality appearing on the face of the records. The law as it stands is that, court under section 34 of the act cannot modify the award. I have already held supra that, the arbitral 53 CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 tribunal has committed patent illegality in awarding claims under the original contract dated 20-5-2015 because the original contract was novated by subsequent MOU. In this petition the court cannot modify the award and award claims under the MOU. Therefore, having concluded that arbitral tribunal committed patent illegality in awarding the claims under the original contract, this court is bound to set aside the award as a whole. Accordingly, the petition succeeds and answering the point for consideration in the affirmative, I proceed to pass the following:-
ORDER The petition under section 34 of the Arbitration and Conciliation Act is allowed, with cost.
Consequently, the impugned arbitral award dated 14-09-2023 passed by the Learned Arbitral Tribunal, consisting of Respondent No. 2 to 4 herein in Arbitration No. 1 of 2022, is hereby set aside.54
CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023 Office to issue soft copy of this judgment to both sides, by e-mail, if furnished. [Dictated using Dragon Professional Speech Recognition Software Version 15.3, transcript revised, corrected, signed and then pronounced by me in open court on this the 29th day of June, 2024] (Sri. S. Sudindranath) LXXXIII ADDL.CITY CIVIL AND SESSIONS JUDGE, COMMERCIAL COURT; BANGALORE.
55CT 1390_Com.A.P.201-2023_Judgment.doc KABC170029862023