Gujarat High Court
Gail (India) Ltd. vs Shreno Ltd. on 27 June, 2018
Bench: M.R. Shah, A.Y. Kogje
C/FA/845/2017 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 845 of 2017
With
R/FIRST APPEAL NO. 849 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE M.R. SHAH sd/
and
HONOURABLE MR.JUSTICE A.Y. KOGJE sd/
=========================================
1 Whether Reporters of Local Papers may be allowed to see NO
the judgment ?
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the fair copy of the NO
judgment ?
4 Whether this case involves a substantial question of law as NO
to the interpretation of the Constitution of India or any
order made thereunder ?
=============================================
GAIL (INDIA) LTD.
Versus
SHRENO LTD.
=============================================
Appearance:
MR. KAMAL TRIVEDI, SENIOR ADVOCATE WITH MR VISHWAS K
SHAH(5364) for the PETITIONER(s) No. 1
DS AFF.NOT FILED (R)(71) for the RESPONDENT(s) No. 2
MR. MIHIR JOSHI, SENIOR ADVOCATE WITH MS ANUJA S NANAVATI(5229)
for the RESPONDENT(s) No. 1
=============================================
CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE A.Y. KOGJE
Date : 27/06/2018
CAV JUDGMENT
(PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.0. As common question of law and facts arise in both these appeals, they are disposed of by this common judgment and order.
Page 1 of 33 C/FA/845/2017 CAV JUDGMENT2.0. Feeling aggrieved and dissatisfied with the impugned order passed by the learned Commercial Court, Vadodara dated 25.11.2016 passed in Commercial CMA No.107 of 2016, by which, the learned Commercial Court has dismissed the said appeal preferred under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "Act") for setting aside the award passed by the learned Arbitrator dated 22.05.2015, whereby, the learned Judge has refused to set aside the award passed by the learned Arbitrator dated 22.05.2015, the original applicant of the counterclaim has preferred present First Appeal No. 845 of 2017 under Section 13 of the Commercial Courts Act, 2015.
2.1. Feeling aggrieved and dissatisfied with the impugned order passed by the learned Commercial Court, Vadodara dated 25.11.2016 passed in Commercial CMA No.106 of 2016, by which, the learned Commercial Court has dismissed the said appeal preferred under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "Act") for setting aside the award passed by the learned Arbitrator dated 22.05.2015, whereby, the learned Judge has refused to set aside the award passed by the learned Arbitrator dated 22.05.2015, the original applicant of the counterclaim has preferred present First Appeal No. 849 of 2017 under Section 13 of the Commercial Courts Act, 2015.
3.0. For the sake of convenience the facts in First Appeal No. 845 of 2017 are narrated and First Appeal No. 845 of 2017 is treated and considered as lead meter.
Page 2 of 33 C/FA/845/2017 CAV JUDGMENT4.0. The facts leading to the present First Appeals in nutshell are as under:
4..1 That the appellant herein GAIL (India) Ltd (hereinafter referred to as the "GAIL") is a Public Sector undertaking under the administrative control of the Ministry of Petroleum & Natural Gas.
Before incorporation of the GAIL in 1984, all supply and marketing of natural gas was done directly by Oil and Natural Gas Commission (ONGC). Subsequently, the supply of gas which was earlier being done by ONGC directly, was taken over by the GAIL. That originally there was company known as Alembic Ltd, incorporated in 1907, which was formally known as Alembic Chemicals Works Ltd. That, the said Alembic Ltd has two associate companies i.e. one was Alembic Glass Industries Limited and another was Alembic Chemicals Works Limited. That subsequently, the Alembic Glass Industries was taken over by the Shreno Limited. That the Alembic Chemicals were having its plant abutting to Shreno premises within the same overall boundary. Initially marketing and supply of natural gas was being done directly by ONGC but thereafter with the incorporation of the GAIL, the gas pipelines and marketing of gas produced by ONGC was transferred to GAIL. That Gas Sales and Transmit Agreement ( for short "Gas Supply Contract") dated 26.12.1995 came to be arrived at between GAIL and Alembic Glass Ltd and subsequently known as M/s. Shreno Ltd, for the supply of 50,000 Standard Cubic Meter (SCM) of Gas per day, for carrying on its manufacturing activities with reference to Glass and Glassware. A similar Gas Supply Contract Page 3 of 33 C/FA/845/2017 CAV JUDGMENT dated 26.12.1995 came to be arrived at between M/s. Alembic Ltd., a Pharma Company, for the supply of 38000 SCM per day at APM price (At this stage, it is required to be noted that earlier there was no difference in past between APM price and non APM price). That thereafter, a supplementary agreement dated 7.6.1996 came to be arrived at between GAIL and M/s Shreno Ltd for supply of gas to the tune of 65000 SCM gas per day. It appears that thereafter, vide letter dated 27.1.998 both the aforesaid consumers viz. M/s. Shreno Ltd and M/s Alembic Limited requested the GAIL to allow them to club their contracted quantities of gas under one single common contract with new single common drawl point. That according to the GAIL, the clubbing was for flexibility and economic use. That thereafter, the aforesaid two consumers submitted a revised request dated 20.08.1998 and made a request for permission of "some alternate arrangement" and "certain modifications in the present system" being flexibility and pressure. That in response to the above, GAIL vide communication dated 19.11.1998 recommended to Ministry of Petroleum Gas (hereinafter referred to as the "MoPNG") for approval of the interconnection facility with a rider that the commercial obligations as provided under the respective gas supply contracts would remain the same. At this stage, it is required to be noted that nothing is on record that MoPNG gave approval or not.
4.2. That during currency of the aforesaid agreements, both M/s. Shreno Ltd and M/s Alembic Limited, jointly applied to GAIL vide letter / communication dated 3.8.2000 for availing all the facilities of interconnection of both the gas supplies at common header after Page 4 of 33 C/FA/845/2017 CAV JUDGMENT metering station of both the units. The facility of interconnection was prayed to get (i) to get equal pressure at the drawl point of the both the units to have a smoother operation; (ii) whenever restriction on gas consumption is imposed, they can make optimal utilization of the gas available.
4.3. That vide communication dated 16.8.2000, GAIL wrote a letter and conveyed that the proposal for interconnection is in principle agreeable, subject to certain conditions laid down therein. Metering and invoicing to be separate. That other companies were also given similar treatment. That as the contract agreement was expiring on 20.12.2000, the same came to be extended upto 31.3.2001, which were further extended upto 30.09.2001. That second Supplementary Agreement thereafter was to issue upto 31.12.2003. That thereafter, on 31.1.2004, M/s. Alembic Ltd contract with GAIL for supply of 1000 SCM for Regasified Liquefied Natural Gas per day so as to take care of its additional requirement of gas at a higher price as compared to the price of APM (Administered Price Mechanism) Gas, being valid upto 2008 and extended thereafter upto 2028. That thereafter, the agreement came to be extended upto 31.3.2005. That in the minutes of meeting dated 08.03.2005 it was recorded that the agreement stood extended and any change in policy before that date would be incorporated.
4.3. That thereafter, MoPGM issued instructions dated 20.06.2005 inter alia provided that consumers getting the existing gas supply through GAIL network would be continued to be supplied natural Page 5 of 33 C/FA/845/2017 CAV JUDGMENT gas to APM price, provided their supplies are upto 50000 SCM per day and supply exceeding said quantity would be charged at market determined price i.e. Non APM price.
4.4. That thereafter, M/s. Shreno Ltd made a request to consider it as a non consumer since consumption is less than 50000 SCM i.e. o.5 MMSCMC vide request dated 14.07.2005. That vide communication dated 12.08.2005, M/s. Shreno Ltd requested GAIL to scale down its requirement by seeking to surrender 15000 SCM of gas, naturally for taking benefit of lower price i.e. APM price of gas as compared to market related price i.e. non APM price. That pursuant to the aforesaid development, a Supplementary Agreement came to be executed between the parties whereunder M/s. Shreno Ltd agreed for reduction of the gas supply from 65000 SCM of gas per day to 50000 of gas per day.
4.5. That thereafter, a fresh contract for supply of same quantity of gas i.e. 50000 SCM per day came to be executed between the parties on the basis of the terms and conditions agreed therein, in view of expiry of the erstwhile contract dated 26.4.1995. It is the case on behalf of the GAIL that as per the contract use was for the propose as fuel unless permitted in writing by GAIL. It is also the case on behalf of the GAIL that as per clause 18.5 of the said contract, the same superseded all the agreements and / or arrangements prevailing then and hence, GAIL had taken for granted that gas supply to M/s. Shreno Limited has remained segregated all throughout under the independent gas supply contract (aforesaid shall be dealt with hereinafter).
Page 6 of 33 C/FA/845/2017 CAV JUDGMENT4.6. That after the expiry of the aforesaid contract dated 1.4.2006 , a fresh and separate gas supply contract for same quantity of gas i.e. 50000 SCM per day came to be executed between the parties on the basis of the terms and conditions indicated therein.
4.7. That thereafter, in the year 2012, vide two separate email communications dated 27.08.2012 both the consumers were able to confirm that drawl of APM Gas allocated for a particular use is consistent and in conformity with the conditions of allocation and the contractual provisions.
4.8. That vide communication dated 14.09.2012 M/s Shreno Limited confirmed the aforesaid position vide its email communication.
4.9. That on the basis of complaint received by the GAIL, its officer visited the establishments of both the above named consumers on 23.11.2012, whereupon they found the diversion of gas from the establishment of M/s. Shreno Limited to M/s. Alembic Limited for running Gas Turbo Generators for producing electricity.
4.10. In view of the above, GAIL issued notice to M/s. Shreno Limited dated 29.11.2012 stating inter alia that it has been unauthorizedly diverting APM Gas to M/s. Alembic Limited, which is in clear breach of Gas Supply Contract, warranting termination thereof followed by cancellation of APM allocation to Shreno Page 7 of 33 C/FA/845/2017 CAV JUDGMENT Limited.
4.11. That M/s. Shreno Limited wrote a letter dated 30.11.2012 to GAIL and for the first time, disclosed that interconnection in question was required for running common gas turbo generators located within the premises of M/s Alembic Ltd for conversion of electricity to drive the gas furnace and utilities and that they were not diverting gas to any other party unauthorizedly and that therefore, notice of disconnection should be withdrawn.
4.12. That apprehending disconnection of gas supply, the aforesaid above named M/s. Shreno Limited and M/s. Alembic Ltd approached this Court by way of filing writ petition being SCA No. 16069 of 2012. This Court vide order dated 3.12.2012 disposed of the aforesaid petition by directing GAIL to afford an opportunity of hearing before disconnection of gas supply. It was the case on behalf of the GAIL that if there was no interconnection facility between the aforesaid two consumers, M/s. Alembic Ltd would have been required to procure additional quantity of gas from GAIL or utilize its contracted quantity of RLN Gas whose price was higher than APM contracted quantity of gas.
4.13. That thereafter, GAIL addressed communication dated 22.05.2013 to both the above named consumer inter alia calling upon them to make it convenient to visit the office of GAIL to discuss the matter on 24.5.2013.
4.14. That GAIL issued a intimation acceding the request for re schedulement of the date of hearing on 27.6.2013 and further Page 8 of 33 C/FA/845/2017 CAV JUDGMENT advised to suspend in the meantime the interconnection arrangement latest by closing hours of 31.5.2013. That during the course of discussion and hearing, M/s. Alembic Ltd informed that the reason for not suspending interconnection immediately was due to the fact that its entire cogeneration facility would be affected. However, the GAIL did not agreed with the said reasons and adjourned the hearing on 10.06.2013 to finalize the issue. That during the course of meeting held on 10.06.2013, the discussion took place and all the parties maintained their stand. At the end, representative of M/s. Shreno Limited and M/s. Alembic Limited sought time for days to get back by 13.6.2013. Thereafter, M/s Shreno Ltd and M/s. Alembic Limited wrote a joint letter dated 13.6.2013 to GAIL reiterating their stand. That thereafter, vide letter dated 5.7.2013 the GAIL advice both the above named consumers to disconnect interconnection arrangement between M/s. Shreno Ltd and M/. Alembic Ltd with immediate effect. The communication dated 5.7.2013 the subject matter of SCA No.11549 of 2013 before this Court. That vide order dated 22.10.2013 this Court disposed of the aforesaid Special Civil Application without grant of any relief as prayed for.
4.15. That thereafter, M/s. Shreno Limited and M/s. Alembic Ltd disconnected the interconnection on 12.11.2013. That thereafter, order came to be passed by this Court in Special Civil Application No.16854 of 2013 to restore and reconnect the supply of gas. That in the aforesaid SCA both the consumers filed petition seeking supply of gas. That as the said SCA No.16854 of 2013 came to be disposed of in view of issuance of notice for arbitration dated Page 9 of 33 C/FA/845/2017 CAV JUDGMENT 13.12.2013 issued to GAIL. That thereafter, issued a debit note to M/s. Shreno Limited for Rs.43,98,61,508/. That Shreno Ltd filed Section 9 application of the Arbitration Act being CMA No. 588 of 2013 seeking interim injunction. Section 9 application came to be rejected. First Appeal No. 3657 of 2013 came to be disposed of by this Court vide order dated 27.12.2013 directing the M/s. Shreno Limited and M/s. Alembic Ltd to remove the interconnection and file an undertaking with security of Rs.78.41 crore with the Registry, with a further direction to GAIL to restart supply of gas within 24 hours of the disconnection of the interconnection.
4.16. That thereafter, the arbitration proceeding commenced and the dispute between the parties was referred to the sole Arbitrator, appointed by the parties Hon'ble Mr. Justice Aftab Alam, a former Judge of the Hon'ble Supreme Court was appointed as a sole arbitrator. M/s. Shreno Limited filed its claim for a sum of Rs.80.96 crore towards damages on account of loss of furnace sustained on account of sudden disconnection of gas from 13.11.2013 and thereafter from 16.12.2013 to 27.12.2013. The GAIL filed its counterclaim of Rs.43.98 crores towards same to be charged as difference between MDP and APM price of gas consumed for the period from 16.12.2005 to 15.12.2013 (to the extent of 50000 SCM principal and interest).
4.17. As the similar claim was made by M/s. Alembic Chemical Limited before the learned Arbitrator and similar counterclaim was made by the GAIL and that before the Arbitrator both the above named consumers also prayed for reconnection of the Page 10 of 33 C/FA/845/2017 CAV JUDGMENT interconnection.
4.18. Before the learned Arbitrator the original claimants above named consumers did not press the relief seeking reconnection of the interconnection. At the time of final hearing, the original claimants above named consumers did not even press their respective claims including compensation sought etc. and abandoned their claim and therefore, learned Arbitrator proceeded further to consider only the counterclaim by the GAIL. The counterclaim by the GAIL was on the allegation that the wrongful diversion of the Gas by M/s Shreno Limited to M/s. Alembic Limited constituted breach of contract. According to the GAIL, by clubbing and commingling the gases, Shreno and Alembic were jointly availing of an allocation above 50000 SCM which was the upper limit for allocation of gas at APM rates. According to the GAIL since the upper limit had been breached, the gas ought top be charged at no APM rates. Therefore, the counterclaim of the GAIL was non APM rates for supply of 50000 SCM so far as M/s. Shreno Limited and 38000 SCM so far as M/s. Alembic Limited claims is concerned, for which debit notes were issued on 23.12.2013.
4.19. That thereafter, after giving fullest opportunity to both the parties and considering the material on record and the documentary evidence on record as well as on appreciation of oral evidence led by the parties, the learned Tribunal specifically observed and held that as the interconnection permission was granted by the GAIL to M/s. Shreno Limited and M/s. Alembic Limited and therefore, commingling of gas permitted and therefore, Page 11 of 33 C/FA/845/2017 CAV JUDGMENT non of the consumers / original claimants have breached the contract. That thereafter, learned sole Arbitrator by a detailed and reasoned award dated 22.05.2015 has dismissed the counterclaim of the GAIL. At this stage, it is required to be noted that by the Debit Notes dated 23.12.2013 the GAIL claimed non APM price for the quantity of gas supply to both the above named consumers for the period between 5.12.2002 to 5.12.2013 and the said debit note was issued for the first time on 22.12.2013 claiming dues towards non APM price for the gas supply between the 5.12.2002 to 5.12.2013, the original claimant raised plea of limitation. However, as the learned Tribunal held in favour of the original claimants that consumers did not breach the contract and by grant of interconnection permission both of them were granted permission for commingling of gas, the learned Tribunal did not decide the issue with respect to the limitation.
4.20. Feeling aggrieved and dissatisfied with the respective awards passed by the learned Arbitrator rejecting the counterclaim, GAIL approached the Commercial Court, Vadodara under Section 34 of the Arbitration Act being Commercial CMA Nos. 106 of 2016 and 107 of 2016. That by impugned order and following decision of the Hon'ble Supreme Court in the case of M/s. Associate Builder vs. Delhi Development Authority reported in (2015) 3 SCC 49, the learned Commercial Court has dismissed the aforesaid petitions submitted under Section 34 of the Arbitration Act by observing that awards passed by the learned Tribunal did not call for any interference as findings recorded by the learned Arbitrator are on appreciation of evidence and the case did not fall in any of the Page 12 of 33 C/FA/845/2017 CAV JUDGMENT parameter for interference in the award declared by the Arbitral Tribunal, as per the decision of the Hon'ble Supreme Court in the case of M/s. Associate Builder (supra).
4.21. Feeling aggrieved and dissatisfied with the impugned respective orders passed by the learned Commercial Court, Vadodara passed in Commercial CMA Nos. 106 of 2016 and 107 of 2016 rejecting the application submitted under Section 34 of the Arbitration Act, the GAIL whose counterclaims have been rejected have preferred present First Appeals under Section 13 of the Commercial Courts Act r/w Section 37 of the Arbitration Act. 5.0. Shri Kamal Trivedi, learned Senior Advocate has appeared with Shri Vishwas Shah, learned advocate for the appellant GAIL (India) Limited and Shri Mihir Joshi, learned Senior Advocate has appeared with Ms. Anuja Nanavati, learned advocate for the respondents respective consumers in both the appeals.
5.1. Shri Kamal Trivedi, learned Senior Advocate appearing on behalf of the GAIL has vehemently submitted that in the facts and circumstances of the case, the learned Commercial Court has materially erred in rejecting Section 34 application and not interfering with the awards passed by the learned Arbitrator.
5.2. It is further submitted by Shri Trivedi, learned counsel for the GAIL that as such findings recorded by the learned Arbitrator were perverse and on misinterpretation of the relevant contract / agreement between the parties and therefore, the learned Commercial Court ought to have interfered with the awards Page 13 of 33 C/FA/845/2017 CAV JUDGMENT declared by the learned Arbitrator.
5.3. It is further submitted by Shri Trivedi, learned counsel for the GAIL that learned Commercial Court has failed to appreciate the findings recorded by the learned Arbitrator that the appellant GAIL has not been able to prove that the claimants have breached the contract. It is submitted that aforesaid findings is contrary to the evidence on record. It is submitted that in the month of November 2012 on receipt of the application by the GAIL, the officers of the GAIL visited the premises and it was found that there was diversion of of gas from the establishment of M/s. Shreno Ltd and M/s. Alembic Ltd for running Gas Turbo Generators for producing electricity. It is submitted that therefore, there was a clear breach of Gas Supply Contract. It is submitted that by the unauthorized diversion of gas from the establishment of M/s. Shreno Limited and M/s. Alembic Limited both consumer acceded use of the gas beyond their allocation of gas. It is submitted that therefore, both the consumers were liable to pay non APM price for the gas supplied. It is submitted that therefore, learned Arbitrator materially erred in rejecting the counterclaim.
5.4. It is further submitted by Shri Trivedi, learned counsel for the GAIL that learned Commercial Court has materially erred in not properly appreciating the fact that when subsequently a fresh contract dated 1.4.2006 was entered into between the parties, as per clause 18.5 of the said contract / agreement all other earlier arrangement / agreement prevailing then were superseded and therefore, earlier interconnection permission granted also stood Page 14 of 33 C/FA/845/2017 CAV JUDGMENT superseded and therefore, thereafter it was not open for the above named consumers to continue with the interconnection. It is submitted that therefore, the learned Arbitrator materially erred in not appreciating above and therefore, on misinterpretation of the respective contracts / agreements, learned Arbitrator has materially erred in holding that by grant of interconnection commingling of gas was permitted and therefore, there was no breach of any of terms of the terms by mixing the gas.
5.5. It is further submitted by Shri Trivedi, learned counsel for the GAIL that even otherwise learned Arbitrator has materially erred in not properly appreciating and / or construing the permission for interconnection granted earlier vide permission dated 3.8.2000. It is submitted that learned Arbitrator has erred in not properly construing the interconnection permission granted on dated 3.8.2000 and the purpose, object and reasons for which, the interconnection permission dated 3.8.2000 was granted. It is submitted that the interconnection permission was sought by M/s. Shreno Limited and M/s. Alembic Limited for two reasons viz. to get equal pressure at the drawl point of the both units to have a smoother operation and to have flexibility and better utilization of gas. It is submitted that by grant of the interconnection permission dated 3.8.2000, it cannot be said that any permission was granted to commingling gases supply to M/s. Shreno Limited and M/s. Alembic Limited .
5.6. It is further submitted by Shri Trivedi, learned counsel for the GAIL that even learned Arbitrator materially has failed to Page 15 of 33 C/FA/845/2017 CAV JUDGMENT consider the supply of gas to both consumers viz. M/s. Shreno Limited and M/s. Alembic Limited. It is submitted that the agreements were entered into between the parties, to supply gas to be used for themselves and the moment it is found that the gas supply to one unit / consumer is diverted and supply to another unit / consumer then the same can be said to be breach of condition of contract for supply of the gas. It is submitted that in the present case it was found that M/s Shreno Limited unauthorizedly diverted the gas to be used by M/s. Shreno Limited itself to M/s. Alembic Limited. It is submitted that M/s. Shreno Limited was required to use the supply of gas for manufactured of glass only and M/s Alembic Chemicals Limited was to supply gas for manufactured of drawing only. It is submitted that the aforesaid has not been appreciated by the learned Arbitrator and therefore, findings be perverse and no prudent person would come to such conclusion that the learned Commercial Court ought to have interfered with the award passed by the learned Arbitrator rejecting the counterclaim.
5.7. Shri Trivedi, learned counsel appearing on behalf of the appellant GAIL has relied upon the decision of the Hon'ble Supreme Court in the case of Rajasthan State Industrial Development and Investment Corporation and Another vs. Diamond & Gem Development Corporation Limited and Another reported in (2013) 5 SCC 470 (para 23 to 25) in support of his submission that the contract is to be interpreted any such a manner to have the real meaning and the terms of the contract are required to be interpreted strictly. It is submitted that not interpreting the Page 16 of 33 C/FA/845/2017 CAV JUDGMENT relevant agreement / contract, more particularly, interconnection permission granted on 3.8.2000 and subsequent agreement dated 1.4.2006 which has resulted into patent illegality and therefore, interference of this Court is called for.
Making above submission and making submission that the findings recorded by the learned Arbitrator are perverse and by misinterpretation of the relevant terms of the contract which has resulted into patent irregularity, it is requested to allow the present appeals and quash and set aside the impugned orders passed by the learned Arbitrator rejecting the counterclaim of the appellant GAIL.
6.0. Both these appeals are vehemently opposed by Shri Mihir Joshi, learned counsel for respondents original claimants respective consumers.
6.1. Shri Joshi, learned counsel for the original claimants has vehemently submitted that findings recorded by the learned Arbitrator rejecting the counterclaim are on appreciation of material and evidence on record and on true interpretation of the relevant contracts, the same are rightly not interfered with by the learned Commercial Court in exercise of powers under Section 34 of the Arbitration Act. It is submitted that therefore, considering the limitation under Section 34 of the Arbitration Act against the interference of the findings recorded by learned Arbitrator when the learned Commercial Court has dismissed Section 34 application, present appeals under Section 37 of the Arbitration Act r/w Section 13 of the Commercial Courts Act, 2015 deserves to be Page 17 of 33 C/FA/845/2017 CAV JUDGMENT dismissed.
6.2. It is vehemently submitted by Shri Joshi, learned counsel for the respondents consumers that the case does not fall in any of the exceptions carved out by the Hon'ble Supreme Court in the case of M/s. Associate Builder (supra) which warrants interference of this Court in exercise of powers under Section 37 of the Arbitration Act, more particularly, when the Commercial Court has refused to interfere with the awards rejecting the counterclaim in exercise of powers under Section 34 of the Arbitration Act. Therefore, relying upon the decision of the Hon'ble Supreme Court in the case of M/s. Associate Builder (supra) and decision of the Division Bench of this Court in the case of Gujarat Mineral Development Corporation Ltd vs. Simplex Infrastructure Limited rendered in First Appeal Nos. 618 of 2017 and 778 of 2017, it is requested to dismiss the present appeals.
6.3. It is vehemently submitted by Shri Joshi, learned counsel for the respondents consumers that as such vide communication dated 3.8.2000 both the consumers were granted the permission for interconnection. It is submitted that as rightly observed by the learned Arbitrator by grant of interconnection permission the consumers were permitted to commingling of gas and therefore, as rightly observed and held by the learned Arbitrator by interconnection and commingling of the gas supplied to M/s. Shreno Limited and M/s. Alembic Limited it cannot be said that there was any breach of contract and / or there was any unauthorized transfer of gas by M/s. Shreno Limited and M/s.
Page 18 of 33 C/FA/845/2017 CAV JUDGMENTAlembic Limited. It is submitted that even thereafter a fresh contract was entered into on 1.4.2006 on the terms and conditions agreed therein. It is submitted that the interconnection permission was continued and at no point of time any objection was raised. It is submitted that even thereafter also, another fresh contract was entered into on 14.12.2010 on the basis of terms and conditions indicated therein. It is submitted that even otherwise interconnection permission was canceled in the month of January 2013. It is submitted that therefore, by virtue of grant of interconnection facilities between two consumers and thereafter when there was commingling of gas which was the resultant effect of grant of interconnection facilities as rightly observed by the learned Arbitrator, it cannot be said that there was any unauthorized transfer of gas of M/s. Shreno Limited and M/s Alembic Limited.
6.4. It is vehemently submitted by Shri Joshi, learned counsel for the respondents consumers that even otherwise counterclaims submitted by the GAIL were required to be rejected and are rightly rejected. It is submitted that admittedly M/s. Shreno Limited was allocated initially 50000 SCM per day which was thereafter enhance to 65000 SCM and Alembic Limited was allocated gas to the extent of 38000 SCM. It is submitted that as per the instructions issued by MoPNG dated 20.06.2005 the APM price are required to be charged for allocation of the Gas to the extent of 50000 SCM per day. It is submitted that there is no factual matrix that what quantity of gas was supplied unauthorizedly by M/s. Shreno Limited.
Page 19 of 33 C/FA/845/2017 CAV JUDGMENT6.5. It is vehemently submitted by Shri Joshi, learned counsel for the respondents consumers that as such the counterclaims of the GAIL was only on the ground that there was unauthorized transfer of supply of gas from M/s. Shreno Limited to M/s. Alembic Limited. It is submitted that assuming but not admitting that there was unauthorized transfer of supply of gas by M/s. Shreno Limited to M/s. Alembic Limited, in that case also, consequence would have been to cancel the allocation and disconnect the gas supply, which is also evident from the document on record. It is submitted that therefore, counterclaims claiming non APM price for the entire allocation / supply of gas i.e. 50000 SCM so far as M/s. Shreno Limited and 38000 SCM so far as M/s Alembic Limited is concerned, same was without any substance and merit less and therefore, also was liable to be dismissed. It is submitted that therefore, the orders passed by the learned Commercial Court i.e. awards declared by the learned Arbitrator rejecting the counterclaim did not require any interference of this Court in exercise of powers under Section 34 of the Arbitration Act r/w Section 13 of the Commercial Courts Act.
Making above submissions and relying upon the above decision, it is requested to dismiss the present appeals.
7.0. Heard the learned advocates for the respective parties at length. At the outset, it is required to be noted that present appeals arise ought of impugned orders passed by the learned Commercial Court, Vadodara rejecting the application submitted by the appellant herein submitted under Section 34 of the Arbitration Act, Page 20 of 33 C/FA/845/2017 CAV JUDGMENT by which, the learned Commercial Court in exercise of powers under Section 34 of the Arbitration Act has refused to interfere with and set aside the awards declared by the learned Arbitrator rejecting the counterclaims submitted by the appellant herein original respondent GAIL. Therefore, the present appeals would be under Section 37 of the Arbitration Act r/w Section 13 of the Commercial Courts Act, 2015. Therefore, while exercising the powers under Section 37 of the Arbitration Act shall be applicable more rigorously. Therefore, first and foremost thing which is required to be considered is scope and ambit of learned Commercial Court under Section 34 of the Arbitration Act and the scope and ambit of present First Appeals under Section 37 of the Arbitration Act.
7.1. In the case of Associate Builders (Supra) the Honble Supreme Court had an occasion to consider the scope and ambit of challenge to the award under Section 34 of the Arbitration Act and when in exercise of powers under Section 34 of the Arbitration Act the findings of fact recorded in the arbitral award can be interfered with by the Court. In the aforesaid decision, the Honble Supreme Court had also an occasion to consider the grounds on which the arbitral award may be assailed. In the aforesaid decision, it is observed and held that it is only when the award is in conflict with the public policy of India as prescribed in Section 34(2)(b)(ii) of the Arbitration Act, that the merits of an arbitral award are to be looked into under certain specified circumstances. In paragraph nos.13 to 17 the Honble Supreme Court has observed and held as under:
Page 21 of 33 C/FA/845/2017 CAV JUDGMENT13. In as much as serious objections have been taken to the Division Bench judgment on the ground that it has ignored the parameters laid down in a series of judgments by this Court as to the limitations which a Judge hearing objections to an arbitral award under Section 34 is subject to, we deem it necessary to state the law on the subject.
14. Section 34 of the Arbitration and Conciliation Act reads as follows "34. Application for setting aside arbitral award. (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with subsection (2) and sub section (3).
(2) An arbitral award may be set aside by the Court only if
(a) the party making the application furnishes proof that
(i) a party was under some incapacity; or
(ii) The arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement Page 22 of 33 C/FA/845/2017 CAV JUDGMENT was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that
(i) the subjectmatter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation.Without prejudice to the generality of subclause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under subsection (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award."
15. This Section in conjunction with Section 5 makes it clear that an arbitration award that is governed by Page 23 of 33 C/FA/845/2017 CAV JUDGMENT part I of the Arbitration and Conciliation Act, 1996 can be set aside only on grounds mentioned under Section 34 (2) and (3), and not otherwise. Section 5 reads as follows:
"5. Extent of judicial intervention.Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."
16. It is important to note that the 1996 Act was enacted to replace the 1940 Arbitration Act in order to provide for an arbitral procedure which is fair, efficient and capable of meeting the needs of arbitration; also to provide that the tribunal gives reasons for an arbitral award; to ensure that the tribunal remains within the limits of its jurisdiction; and to minimize the supervisory roles of courts in the arbitral process.
17. It will be seen that none of the grounds contained in sub clause 2 (a) deal with the merits of the decision rendered by an arbitral award. It is only when we come to the award being in conflict with the public policy of India that the merits of an arbitral award are to be looked into under certain specified circumstances.
What can be said to be against the public policy of India has been discussed by the Honble Supreme Court in the said decision. At this stage, it is required to be noted that it is not the case on behalf of the appellant that the award declared by the learned Arbitral Tribunal is in conflict with the public policy of India. Under the circumstances, the same is not required to be dealt with any further.
7.3. Thereafter, the Honble Supreme Court in the aforestated decision has considered the fourth head namely "patent illegality". While considering what can be said to be "patent illegality" the Page 24 of 33 C/FA/845/2017 CAV JUDGMENT Honble Supreme court has observed in paragraph nos.40 to 45 as under;
Patent Illegality
40. We now come to the fourth head of public policy namely, patent illegality. It must be remembered that under the explanation to section 34 (2) (b), an award is said to be in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption. This ground is perhaps the earliest ground on which courts in England set aside awards under English law. Added to this ground (in 1802) is the ground that an arbitral award would be set aside if there were an error of law by the arbitrator. This is explained by Lord Justice Denning in R v. Northumberland Compensation Appeal Tribunal. Ex Parte Shaw., 1952 1 All ER 122 at page 130:
"Leaving now the statutory tribunals, I turn to the awards of the arbitrators. The Court of King's Bench never interfered by certiorari with the award of an arbitrator, because it was a private tribunal and not subject to the prerogative writs. If the award was not made a rule of court, the only course available to an aggrieved party was to resist an action on the award or to file a bill in equity. If the award was made a rule of court, a motion could be made to the court to set it aside for misconduct of the arbitrator on the ground that it was procured by corruption or other undue means: see the statute 9 and 10 Will. III, c. 15. At one time an award could not be upset on the ground of error of law by the arbitrator because that could not be said to be misconduct or undue means, but ultimately it was held in Kent v. Elstob, (1802) 3 East 18, that an award could be set aside for error of law on the face of it. This was regretted by Williams, J., in Hodgkinson v. Fernie, (1857) 3 C.B.N.S. 189, but is now well established."
41. This, in turn, led to the famous principle laid down in Champsey Bhara Company v. The Jivraj Balloo Spinning and Weaving Company Ltd., AIR 1923 PC 66, where the Privy Council referred to Hodgkinson and then laid down:
"The law on the subject has never been more clearly stated than by Williams, J. in the case of Hodgkinson v. Fernie (1857) 3 C.B.N.S. 189.
"The law has for many years been settled, and remains so at this day, that, where a cause or Page 25 of 33 C/FA/845/2017 CAV JUDGMENT matters in difference are referred to an arbitrator a lawyer or a layman, he is constituted the sole and final judge of all questions both of law and of fact ...... The only exceptions to that rule are cases where the award is the result of corruption or fraud, and one other, which though it is to be regretted, is now, I think firmly established viz., where the question of law necessarily arises on the face of the award or upon some paper accompanying and forming part of the award. Though the propriety of this latter may very well be doubted, I think it may be considered as established."
"Now the regret expressed by Williams, J. in Hodgkinson v. Fernie has been repeated by more than one learned Judge, and it is certainly not to be desired that the exception should be in any way extended. An error in law on the face of the award means, in their Lordships' view, that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is, and then going to the contract on which the parties' rights depend to see if that contention is sound. Here it is impossible to say, from what is shown on the face of the award, what mistake the arbitrators made. The only way that the learned judges have arrived at finding what the mistake was is by saying: "Inasmuch as the Arbitrators awarded so and so, and inasmuch as the letter shows that then buyer rejected the cotton, the arbitrators can only have arrived at that result by totally misinterpreting Cl.52." But they were entitled to give their own interpretation to Cl. 52 or any other article, and the award will stand unless, on the face of it they have tied themselves down to some special legal proposition which then, when examined, appears to be unsound. Upon this point, therefore, their Lordships think that the judgment of Pratt, J was right and the conclusion of the learned Judges of the Court of Appeal erroneous."
This judgment has been consistently followed in India to test awards under Section 30 of the Arbitration Act, 1940.
Page 26 of 33 C/FA/845/2017 CAV JUDGMENT42. In the 1996 Act, this principle is substituted by the 'patent illegality' principle which, in turn, contains three sub heads 42.1 (a) a contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is a really a contravention of Section 28(1)(a) of the Act, which reads as under:
"28. Rules applicable to substance of dispute.(1) Where the place of arbitration is situated in India,
(a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;"
42.2 (b) a contravention of the Arbitration Act itself would be regarded as a patent illegality for example if an arbitrator gives no reasons for an award in contravention of section 31(3) of the Act, such award will be liable to be set aside.
42.3 (c) Equally, the third subhead of patent illegality is really a contravention of Section 28 (3) of the Arbitration Act, which reads as under:
"28. Rules applicable to substance of dispute. (3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction."
This last contravention must be understood with a caveat. An arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do.
43. In McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181, this Court held as under:
"112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and Page 27 of 33 C/FA/845/2017 CAV JUDGMENT they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. (See Pure Helium India (P) Ltd. v. ONGC [(2003) 8 SCC 593] and D.D. Sharma v. Union of India [(2004) 5 SCC 325]).
113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award."
44. In MSK Projects (I) (JV) Ltd. v. State of Rajasthan, (2011) 10 SCC 573, the Court held:
"17. If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such a jurisdictional error needs to be proved by evidence extrinsic to the award. (See Gobardhan Das v. Lachhmi Ram [AIR 1954 SC 689], Thawardas Pherumal v. Union of India [AIR 1955 SC 468], Union of India v. Kishorilal Gupta & Bros. [AIR 1959 SC 1362], Alopi Parshad & Sons Ltd. v. Union of India [AIR 1960 SC 588], Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji [AIR 1965 SC 214] and Renusagar Power Co. Ltd. v. General Electric Co. [(1984) 4 SCC 679 : AIR 1985 SC 1156] )."
45. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306, the Court held:
"43. In any case, assuming that Clause 9.3 was capable of two interpretations, the view taken by the arbitrator was clearly a possible if not a plausible one. It is not possible to say that the arbitrator had Page 28 of 33 C/FA/845/2017 CAV JUDGMENT travelled outside his jurisdiction, or that the view taken by him was against the terms of contract. That being the position, the High Court had no reason to interfere with the award and substitute its view in place of the interpretation accepted by the arbitrator.
44. The legal position in this behalf has been summarized in para 18 of the judgment of this Court in SAIL v. Gupta Brother Steel Tubes Ltd. [(2009) 10 SCC 63: (2009) 4 SCC (Civ) 16] and which has been referred to above. Similar view has been taken later in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. [(2010) 11 SCC 296: (2010) 4 SCC (Civ) 459] to which one of us (Gokhale, J.) was a party. The observations in para 43 thereof are instructive in this behalf.
45. This para 43 reads as follows: (Sumitomo case [(2010) 11 SCC 296 : (2010) 4 SCC (Civ) 459] , SCC p. 313) "43. ... The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of Clause 17.3 but that cannot make the award in any way perverse. Nor can one substitute one's own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwality Mfg. Corpn. v. Central Warehousing Corpn. [(2009) 5 SCC 142 : (2009) 2 SCC (Civ) 406] the Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding."
7.4. The aforesaid decision in the case of Associates Builders (supra) has been followed by the Division Bench of this Court in the case of Simplex Infrastructure Limited (supra) and after following decision of the Hon'ble Supreme Court in the case of Page 29 of 33 C/FA/845/2017 CAV JUDGMENT Associates Builders (supra), the Division Bench of this Court had refused to interfere with the order passed by the learned Commercial Court rejecting Section 34 application.
7.5. Applying the law laid down by the Hon'ble Supreme Court in the aforesaid decisions to the facts of the case on hand, the findings recorded by the learned Arbitrator while rejecting the counterclaim submitted by the appellant GAIL original respondent, this Court is required to examine and / or consider whether the learned Commercial Court is justified in rejecting the application submitted under Section 34 of the Arbitration Act and not interfering with the respective awards passed by the learned Arbitrator rejecting the counterclaims.
8.0. Having heard the learned advocates for the respective parties and considering the award declared by the learned Arbitral Tribunal and impugned order passed by the learned Commercial Court passed under Section 34 of the Arbitration and Conciliation Act, more particularly, findings recorded by the learned Arbitral Tribunal, we are of the opinion that case does not fall in any of the exceptions carved out by the Hon'ble Supreme Court in the case of M/s. Associate Builder (supra), which warrants interference of this Court in exercise of powers under Section 37 of the Arbitration Act, more particularly, when the Commercial Court by speaking and reasoned order has refused to interfere with the awards rejecting the counterclaim in exercise of powers under Section 34 of the Arbitration Act.
Page 30 of 33 C/FA/845/2017 CAV JUDGMENT8.1. On appreciation of evidence and considering the material on record and the considering the communication dated 3.8.2000, by which, both the consumers were granted the permission for interconnection, the learned Tribunal has rightly observed that both the consumers were permitted to commingling of gas and therefore, as such there was no breach of contract as alleged on behalf of the appellant herein GAIL. By granting permission to both the consumers for interconnection of the gas supply thereafter commingling of the gas was consequence. It is required to be noted that said permission was cancelled subsequently in the month of January 2013. The findings recorded by the learned Arbitral Tribunal on appreciation of evidence and in any case the same cannot be said to be perverse.
8.2. It is also required to be noted that the counterclaims of the GAIL were on the basis of the debit notes dated 23.12.2013 and solely on the ground that there was unauthorized transfer of supply of gas from M/s Shreno Limited to M/s. Alembic Limited and therefore, in the counterclaims, the GAIL claimed non APM price for the entire allocation / supply of gas i.e. 50000 SCM so far as M/s. Shreno Limited and 38000 SCM so far as M/s Alembic Limited is concerned. Nothing has been substantiated in the counterclaims by the GAIL, more particularly, leaving non APM price for the entire allocation / supply of gas to M/s. Shreno Limited and M/s Alembic Limited is concerned. As rightly submitted, assuming that there was any unauthorized transfer of supply of gas from M/s. Shreno Limited to M/s Alembic Limited, consequence would have Page 31 of 33 C/FA/845/2017 CAV JUDGMENT been to cancel the allocation and disconnect the gas supply, which has such was in fact suggested in the subsequent communication. At this stage, it is required to be noted that the counterclaims by the GAIL was claiming non APM price for the period between 5.12.2002 to 5.12.2013. That debit note was issued for the first time on 22.12.2013 and the amount mentioned in the debit note was sought to be recovered only by way of counterclaim. Nothing is on record that any demand was made earlier, more particularly, in the year 2005 onwards till 23.12.2013. Straightway debit note dated 23.12.2013 was issued claiming non APM price for the entire allocation / supply of gas i.e. 50000 SCM so far as M/s. Shreno Limited and 38000 SCM so far as M/s Alembic Limited is concerned. Therefore, it appears that counterclaim was a counter blast to the dispute raised by the original applicant.
8.3. In any case, award declared by the learned Tribunal cannot be said to be against the public policy and / or as observed herein above, the same will not fall under any of the exceptions carved out by the Hon'ble Supreme Court while interfering with the award declared by the Arbitrator. It is required to be noted that present appeal is under Section 37 of the Arbitration and Conciliation Act and learned Commercial Court has refused to set aside the award declared by the learned Arbitral Tribunal in exercise of powers under Section 34 of the Arbitration and Conciliation Act.
9.0. In view of the above and for the reasons stated above, no interference of this Court in exercise of powers under Section 37 of Page 32 of 33 C/FA/845/2017 CAV JUDGMENT the Arbitration and Conciliation Act is called for. Under the circumstances, both the appeals deserve to be dismissed and are accordingly dismissed.
sd/ (M.R. SHAH, J) sd/ (A.Y. KOGJE, J) KAUSHIK J. RATHOD Page 33 of 33