Delhi High Court
National Thermal Power Corporation ... vs Siemens Atiengesellschaft on 26 April, 2012
Author: S. Muralidhar
Bench: S. Muralidhar
IN THE HIGH COURT OF DELHI AT NEW DELHI
O.M.P.229/2009
Reserved on: March 15, 2012
Pronounced on: April 26, 2012
NATIONAL THERMAL POWER CORPORATION LTD.
..... Petitioner
Through: Mr. Dushyant Dave, Senior Advocate
with Ms. Ruchi G. Narula, Mr.
Anukul Raj and Mr. Anirudh,
Advocates.
Versus
SIEMENS ATIENGESELLSCHAFT ..... Respondent
Through: Mr. Dipankar Gupta, Senior Advocate
with Mr. Anil Bhatnagar, Mr. Amit
Dhingra and Mr. Aman Leekha,
Advocates.
AND
O.M.P.230/2009
NATIONAL THERMAL POWER CORPORATION LTD.
..... Petitioner
Through: Mr. Dushyant Dave, Senior Advocate
with Ms. Ruchi G. Narula, Mr.
Anukul Raj and Mr. Anirudh,
Advocates.
Versus
SIEMENS ATIENGESELLSCHAFT ..... Respondent
Through: Mr. Dipankar Gupta, Senior
Advocate with Mr. Anil Bhatnagar,
Mr. Amit Dhingra and Mr. Aman
Leekha, Advocates.
CORAM: JUSTICE S. MURALIDHAR
JUGDMENT
26.04.2012
O.M.P. Nos. 229 and 230 of 2009 Page 1 of 42
1. These two petitions under Section 34 of the Arbitration & Conciliation
Act, 1996 ('Act') by the National Thermal Power Corporation Limited
('NTPC') challenge the partial Award dated 31st July 2002 and the final
Award dated 6th January 2009 passed by the International Court of
Arbitration ('Tribunal') of the International Chamber of Commerce (ICC) by
which NPTC has been directed to pay the Respondent Siemens
Aktiengesellschaft ('SAG') a sum of Euro 17,158,557 on account of Claims
C-2 to C-8, with Claim C-9 being rejected and further that NTPC should pay
SAG a sum of Euro 7,604,296.38 by way of interest at 6% simple per annum
on the aforementioned sum for the period from 20th August 2001 till the date
of the Award i.e. 6th January 2009 and post Award interest at 6% simple per
annum. NPTC was also directed to bear the cost of arbitration i.e. USD
877,000 excluding USD 30,000 set aside for stamp duty and Euro 989,100
towards attorneys' fees, expert fees and related expenses. According to
NTPC, the total liability without calculating interest as on the date of the
making of the Award i.e. 6th January 2009 was approximately Rs.174 crores.
Background Facts
2. NTPC awarded SAG on 30th September 1989 the project of Gas Based
Combined Cycle Power Project of 817 MW at Dadri, Uttar Pradesh. The
contract was entered into on 6th December 1989 and the General Terms and
Conditions of the Contract ('GCC') formed part of the contract.
3. The project was to be constructed in two stages. In the first stage, four
Gas Turbine Generators being Unit Nos.1, 2, 3 and 4 were to be constructed
where power was generated by the use of natural gas and the waste gases
escaping into the atmosphere. This was "the open cycle". The second stage
involved construction of two Combined Cycle Modules, being Modules-1
and 2 where Unit Nos.1 and 2 and Units 3 and 4 respectively of Open Cycle
O.M.P. Nos. 229 and 230 of 2009 Page 2 of 42
were combined. Waste gases from the open cycle were combined and
utilized in the further generation of power.
4. There were specific time schedules for each of the stages of the entire
project.
5. Disputes arose between the parties about the delay in the opening by
NTPC of the Letters of Credit ('LC') which in turn led to delays during the
execution of the first open cycle. Under Clause 20.2 of the Contract, the
dates by which items of the first combined cycle had to be readied for
shipment and with reference to such dates, the dates by which LCs were to
be established by the NTPC were specified. For instance, the emergency DG
generator was expected to be shipped on 1st February 1990 and the LC had
to be established one month prior to that i.e. by 1st January 1990. The
electrical items (Item Nos.83, 86, 88 and 90) had to be shipped by 1st May
1990. Correspondingly, the LC had to be opened on 1st April 1990. In fact,
the LC for both these sets of equipments was established on 24th November
1990 and the dispatch could take place on 22nd December 1990. The gas
turbine as well as generator for Unit No.1 was expected to be shipped on 1st
June 1990. The LC for the gas turbine was established on 9th August 1990,
with the delay of 100 days and was ultimately shipped on 30th August 1990.
The LC for the generator was established on 24th November 1990, with a
delay of 207 days and was ultimately shipped on 22nd December 1990.
6. There were corresponding delays in the subsequent stages of the project
also. Ultimately the completion of the project was delayed by 55 months.
The Gas Turbine 1 was commissioned with a delay of 13 months, the Gas
Turbine 2 with a delay of 12 months, the combined cycle No.1 with a delay
of 51 months. Gas Turbine 3 and Gas Turbine 4 were commissioned with a
O.M.P. Nos. 229 and 230 of 2009 Page 3 of 42
delay of 11 and 14 months respectively. Combined Cycle 2 completed
successful trial operation only on 8th March 1997 with a delay of 55 months.
7. The actual date of opening of the LCs by NTPC is not in dispute.
However, NTPC explained its difficulties as being attributable
predominantly to the following reasons:
"(a) The imports for the Dadri Gas Project were being
financed through a bilateral loan between Govt. of India
and Germany. As per the Govt. of India procedures, for
the purpose of applying for Import License it is
mandatory to have the loan agreement effective. The
loan between Government of India and German
Government (i.e. KFW) could not be signed in time
leading to delay in the Import License (I/L) and
consequently delay in establishing Letter of Credit, which
is 'act of Government beyond the control of the parties.
(b) Further DGTD did not clear a few electrical items,
which were subsequently cleared only in Feb 1991 and
I/L of these electrical items could, therefore be obtained
in March 1991 and L/C was established on 8th April
1991.
(c) Apart from this, the Respondent-Siemens was also
responsible for causing delays as can be demonstrated
from the papers available on record of the case."
8. NTPC claimed that despite the above difficulties it made all out efforts
and obtained part import licence in July 1990 and the balance import licence
in November 1990. The import licence for the remaining electrical items
was issued on 9th March 1991. LCs were, thereafter, correspondingly
established.
9. On 13th May 1991, SAG made a claim of DM 37.5 million (for a delay
of 12.5 months calculated at the rate of 3 million per month) from NTPC
O.M.P. Nos. 229 and 230 of 2009 Page 4 of 42
under Clause 22.2 of the GCC for the delay in opening the LCs and on
various other grounds.
10. NTPC by its letter dated 2nd July 1991 denied SAG's Claims stating that
the delay in the execution of the contract was due to the fault of SAG and
not NTPC. SAG however reiterated its claim on 30th April 1992 which was
rejected by NTPC on 22nd July 1992. SAG again revived the claim on 12th
November 1993 for a sum of DM 70,698,674 but this was never agreed to.
11. According to NTPC, it asked SAG to submit necessary documentary
proof to substantiate its claim that delay had occurred due to NTPC and also
substantiate the additional cost claimed on account of such delay. NTPC
states that it conveyed its willingness to allow the grace period for
completion of the trial operation of the project by nine months under Clause
20.2 GCC "purely with the intention of accommodating the Respondent so
that a healthy working relationship could continue between the parties."
12. SAG submitted a claim once again on 23rd June 2001 in the sum of DM
44.11 million to the General Manager, NTPC, Dadri, who was the Engineer
in terms of the contract. By a letter dated 16th August 2001, the Engineer
rejected the claim as not being tenable.
Partial Award of the ICC Tribunal
13. Upon rejection of its claim, SAG approached the International Court of
Arbitration (ICC - Paris) under Clause 27 GCC and filed its claims C-2 to
C-9 for a total amount of DM 44,111,949. By a letter dated 24th August
2001, the ICC informed NTPC of the lodging of the above claims against it
by SAG. Apart from its reply to the statement of claims, NTPC also filed its
counter claims for Euro 210,307. Among other counter claims by NTPC one
was on account of failure of the SAG to fulfill its obligations under the
O.M.P. Nos. 229 and 230 of 2009 Page 5 of 42
contract, inter alia, with respect to supply of spares, critical components,
special tools and plants and the losses suffered by NTPC on account of
delays caused by the SAG in completing the work as per schedule.
14. By an order dated 22nd March 2002, the Tribunal decided to hold
preliminary hearings on the issue of limitation and jurisdiction. It is stated
that the arguments on the preliminary issues were addressed on 3rd, 4th and
5th May 2002 at Delhi. Written submissions on the said issues were filed by
both parties on 27th May 2002. By a partial Award dated 31st July 2002, the
Tribunal rejected the contentions of NPTC that SAG's claims were barred
by limitation and held that the same were arbitrable. In view of the
settlement between the parties made on 6th/7th April 2000 it was held by the
Tribunal that NTPC's counter claims were not admissible or arbitrable.
Earlier challenge to the partial Award
15. An appeal was filed by NTPC against the partial Award under Section
37 (2) (a) of the Act on the ground that the order passed by the Tribunal was
virtually a decision under Section 16 (2) of the Act accepting the plea of lack
of jurisdiction. The appeal, registered as OMP No.462 of 2003, was
dismissed by this Court in National Thermal Power Corporation Ltd. v.
Siemens Atiengesellschaft 121 (2005) DLT 36. NTPC's further appeal to
the Supreme Court was dismissed by the directions in National Thermal
Power Corporation Ltd. v. Siemens Atiengesellschaft (2007) 4 SCC 451.
16. Before the Supreme Court, it was contended by NTPC that since its
counter claim had been rejected by the partial Award and it was a case of
failure by the Tribunal to exercise jurisdiction, therefore it was an order
under Section 16(2) or 16(3) of the Act in respect of which an appeal could
have been filed to the High Court under Section 37 of the Act. This plea was
negatived by the Supreme Court by pointing out that what the Tribunal had
O.M.P. Nos. 229 and 230 of 2009 Page 6 of 42
found in the partial Award was that in view of the MOM dated 6th/7th April
2000, "wherein the various claims of either party were thrashed out and
settled, NTPC could not pursue most of the claims set out in the counter
claim." That was the finding on the merits of NTPC's counter claims. It was
not a decision either under Section 16(2) or 16(3) of the Act. The finding of
the High Court to the same effect was upheld.
17. NTPC has filed O.M.P. No. 230 of 2009 questioning the rejecting of its
counter claims by the partial Award. For the reasons explained hereinafter,
the Court negatives this challenge.
The Final Award
18. The Tribunal proceeded to hear the final arguments on 12th, 13th and 14th
May 2008 and the impugned final Award was passed on 6th January 2009.
The claims of SAG allowed by the Tribunal were as under:
S. Claim Description Amount awarded
No. No. (DM)
1. C-2 On account of increased costs for 3,314,106
disruption and delay of Project
Engineering, management and
coordination
2. C-3 On account of increased costs for 877,497
acceleration of Project EPC
3. C-4 Increased cost of additional travel 425,955
4. C-5 Increased cost for storage of 192,198
materials, equipment and
machinery
5. C-6 Increased cost for extension of 305,783
contract performance guarantee
O.M.P. Nos. 229 and 230 of 2009 Page 7 of 42
6. C-7 Delayed payments incurring 10,308,337
increased financial charges
7. C-8 Head Office overheads and profits 18,135,345
8. C-9 Costs of preparing the claim were rejected.
The total value of the claims of Euro
SAG that were allowed by the 17,158,557
Tribunal
19. As already noted, the Tribunal awarded simple interest at 6% per annum
from the date of the request for arbitration i.e. 20th August 2001 till the date
of the Award and post Award interest at the same rate till the date of
payment. Costs and fees were awarded as indicated earlier.
Issues finally decided by the Partial Award
20. One of the issues that arose before the Tribunal concerned the finality of
the partial Award. The case of NTPC was that in terms of the reference
framed under the ICC Rules read with the agreement between the parties
under the arbitration clause read with Section 19(2) of the Act, the parties
had agreed on the procedure to be followed by the Tribunal in conducting its
proceedings. Reference was made to the issue Nos. 5.12 to 5.15, which
were formulated by the Tribunal as part of the terms of the reference, which
read as under:
"5.12 (i) Was there delay in opening the Letters of
Credit and in the availability of the Import Licence or
permission to ship Structural Steel plates, on the dates
alleged by the Claimant?
(ii) Did the Respondent give an extension of time for
nine (9) months?
(iii) If so, did the Respondent accept the implications as
stated in paragraphs 13 and 14 of the Statement of Claim?
O.M.P. Nos. 229 and 230 of 2009 Page 8 of 42
5.13 Whether the alleged delay in opening Letters of
Credit/obtaining or Import Licence etc. by the
Respondent is excusable and justified in terms of the
relevant provisions of the Contract and in the facts and
circumstances of the case?
5.14 Does responsibility for the delays in the Project
rest with the Claimant or Respondent?
5.15 Has the Claimant committed any breaches of
Contract as stated by the Respondent in its counter claims
and in response to the claims of the Claimant?"
21. Under issue No.5.16 the Tribunal had to determine whether, in the event
of NTPC having committed breach of the contract, SAG was entitled to
receive damages. Under issue Nos. 5.17 to 5.20 the Tribunal was to
ascertain the quantum of damages and costs payable to SAG and whether
NTPC was entitled to any of its counter claims. It was submitted that
despite formulating the procedure and observing that it was at that stage
refraining from expressing views on merits and only referring to "a limited
series of quotations from the relevant documentation" and further that "the
first mention of limitation does not arise until the arbitration is commenced."
It is urged by NTPC that a fait accompli was presented by the Tribunal in
Para 38 of the final Award where it observed that "the intention of the
Tribunal was to decide the issue of limitation definitively and finally unless
the parties agreed, or it became clear that further evidence and submissions
were required." It was submitted that under the terms of reference read with
Article 20 of the ICC Rules, it was incumbent on the Tribunal to proceed
with "establishing the facts of the case by all appropriate means" and
thereupon make an Award in terms of Article 25 of the ICC Rules. It was
submitted that the Tribunal, in fact, totally failed to determine the issues "on
merits" in terms of the reference.
22. Before the Tribunal, NTPC raised a preliminary objection that SAG's
O.M.P. Nos. 229 and 230 of 2009 Page 9 of 42
claims were time barred. On its part, SAG raised a preliminary objection
that a majority of the counter claims of NTPC were subject to a settlement
agreement between the parties recorded in the Minutes of the Meeting
('MOM') dated 6th/7th April 2000 and that certain other counter claims were
time barred. Consequently, the Tribunal at the stage of the Partial Award,
after due notice to the parties, decided the above two preliminary issues, viz.
(i) Whether the claims of SAG were time barred; (ii) Whether the counter
claims of the NTPC were admissible.
23. In its partial Award, the Tribunal noted the submissions of NTPC and
first dealt with the issue concerning the jurisdiction. After referring to the
correspondence between the parties, it was held that the case of NTPC that
the limitation period began to run sometime between 1990 and 1992 was
untenable. In the partial Award, the Tribunal in Para 3.9 observed that the
parties had agreed, as noted by NTPC in its letter dated 11th September 1998,
to a nine month extension of time (EOT) for the schedule for gas turbine and
combined cycle modules and, therefore, they were "only in dispute as to the
resulting extra costs, if any, due to the Claimant (SAG)." The Tribunal
referred to the exchange of correspondence in 1997, 1998, 1999 and 2000.
The question that fell for determination was whether within a period of three
years prior to the date of reference of the disputes for arbitration i.e. 20th
August 2001, the cause of action survived as far as SAG's claims were
concerned. It was held that in para 4.24 that there was an agreement by the
parties upon a nine-month EOT reached on 11th September 1998 and this
was within the period of three years prior to the request for arbitration being
received by the ICC in Paris on 23rd August 2001. The counter claims of
NTPC were found covered by the MOM dated 6th/7th April 2000.
O.M.P. Nos. 229 and 230 of 2009 Page 10 of 42
Present challenge to the partial Award
24. A point has been raised by SAG that NTPC did not file an application
under Section 34 of the Act challenging the partial Award within time. It is
submitted that the Supreme Court's decision was handed down in February
2007 whereas the present petition was filed in April 2009 which was well
beyond the permissible period of limitation in terms of Section 34(3) of the
Act. Reference is made to McDermott International Inc. v. Burn Standard
Co. Ltd. (2006) 11 SCC 181.
25. It is correct that in McDermott International Inc. v. Burn Standard Co.
Ltd. the Supreme Court opined that a partial Award could be a final Award
on matters decided therein "but made at an interim stage." It was further
stated that a partial Award "is final in all respects with regard to disputes
referred to the arbitrator which are the subject matter of such award." It was
further categorically held that "both the partial award and the final award are
subject matter of challenge under Section 34 of the Act." Again in State of
Arunachal Pradesh v. Damani Construction (2007) 10 SCC 742, it was
acknowledged by the Supreme Court that an interim award in that case "was
final to the extent of the claims decided therein." Indeed in the present case
in Para 2.10 of the partial Award, it is referred to by the Tribunal as the
"Final Partial Award."
26. As regards the counter claims of NTPC being rejected, in fact, the partial
Award was the final Award. This was acknowledged by the learned Senior
counsel for NTPC before the Tribunal which was recorded by it in Para 18.7
of the final Award which reads as under:
"7. The second issue disposed of by the Partial Award,
was that of the Respondent's counterclaims as referred to
in the Partial Award at paragraph 4, paragraphs 4.1 to
4.67:
"The first counter claim is not admissible both in
its original form and as amended. The second,
O.M.P. Nos. 229 and 230 of 2009 Page 11 of 42
third, fourth, fifth, sixth, eighth and ninth
counterclaims which have been the subject of a
prior binding settlement are not admissible. And
the seventh counterclaim is not admissible, there
being no dispute."
It was expressly accepted by Mr. Dave that it was not
open to the Respondent to seek to go behind this finding
in the Partial Award. Accordingly, it was common
ground that the finding of the Tribunal barring the
Respondent's counterclaims was final. No issue arises on
this finding."
27. The partial Award decided that the claims of SAG were not barred by
limitation. In para 19, the Tribunal recorded what the position of NTPC was
in regard to the partial Award. It reads as under:
"19. As the Transcript record (Day 1, pages 16-17), Mr.
Dave said that his position with respect to the Partial
Award was:
"Dushyant Dave: So far as the question of time bar
is concerned, it has been held against us. But
undoubtedly it is our stand that we have never
agreed, we have only agreed to consider if it is
possible and we are going to take a stand that by
virtue of acquiescence they would not, be entitled
to raise these claims now. So, it is our stand that
we have never agreed to give it.
Dushyant Dave: We have ... there are two things,
Sir, here. One is, it is for them to show that there
was an agreement on our part that 9 months
extension is granted. I think none of the
documentary evidence adduced by them establish
that. But, be that as it may, we have specifically
averred in our reply to the statement of claim that
we have never agreed. That's our stand. And the
witness only fortifies that in his evidence.
Chairman: I understand that ... but the question I
think or the point that I think Mr. Gupta will or is
O.M.P. Nos. 229 and 230 of 2009 Page 12 of 42
raising, is that it is not open to you to take these
points at this stage of the proceedings, having
regard to the terms of the Final Partial Award. If
that's right, it will be helpful to know why you
say... or given that, that is an argument, you are
plainly going to have to meet. It would be helpful
to know why you say that this is open to you?
Dushyant Dave: Because the findings in Partial
Award were in respect of two specific issues. And
in my respectful submission, those issues, decision
on those issues, certainly would disentitle me from
now arguing on limitation. But it certainly does
entitle me to show that there was no agreement and
therefore the Claimant has to prove that it is
entitled to damages on account of any delay. That
there was a delay and that therefore it is entitled to
... that will have to be established because those
are part of the other issues which now are before
the Hon'ble Tribunal for decision. A number of
issues were framed and only two issues came to be
decided in the Partial Award." (emphasis added)"
28. NTPC urged before the Tribunal that it was incumbent on it to decide
the issues on "merits" in terms of Article 20 of the ICC Arbitration Rules. In
Para 47 of the final Award the Tribunal negatived the said submission as
misrepresenting the meaning of Para 4.1 of the partial Award. In other
words, the expression "merits" referred to the merits of the claims of SAG
and not the nine-month extension. Nevertheless, the Tribunal also accepted
the contention, and in view of this Court correctly, that under the 1996 Act,
the arbitral award has been defined under Section 2(c) to include an interim
Award. Under Section 31(6) of the Act, the Tribunal can at any time make
an interim award "on any matter with respect to which it may make a final
arbitral award."
O.M.P. Nos. 229 and 230 of 2009 Page 13 of 42
29. On the issue of nine-month EOT the Tribunal in its final Award again
referred to the procedural history and concluded in para 38 as under:
"38. It was on that basis that the May 2002 hearings
took place. Both parties were plainly on notice that it
was the intention of the Tribunal to decide the issue of
limitation definitively and finally unless the parties
agreed, or it became clear, that further evidence and
submissions were required. Whether or not a nine
month EOT has been given was an issue of fact
squarely within the scope of the limitation issue.
Neither party suggested in the hearings or in the post
hearing briefs, that the issue of limitation including
whether or not a nine month EOT had been given could
not be decided finally on the basis of the evidence and
submissions made in the May hearings. On this record,
it is simply not open to the Respondents to suggest that
the Partial Award was other than final. However,
having regard to the different positions adopted by the
parties at the March and May 2008 hearings and the
requests by both parties that we should do so, the
Tribunal has considered the evidence and submissions
on the issue of the nine month EOT again."
30. That is how the issue of nine-month EOT, although decided in the partial
Award, came to be again decided in the final Award.
31. The position, therefore, that emerges is that the partial Award was, in
fact, a final Award on two issues: (a) that the counter claims of NTPC were
inadmissible and (b) SAG's claims were not barred by limitation. Since the
partial Award was not challenged under Section 34 of the Act in respect of
the above two issues within the limitation period prescribed under Section
34 (3) of the Act, it cannot be permitted to be urged in the present petition by
NTPC. O.M.P. No. 230 of 2009 therefore cannot be entertained and is
dismissed. It may also be mentioned that a third issue finally settled by the
partial Award is that the Tribunal had jurisdiction to entertain the dispute (as
O.M.P. Nos. 229 and 230 of 2009 Page 14 of 42
held in para 4.16 and 4.22 of the partial Award). That has also not been
challenged by NTPC.
32. Therefore, the scope of the present proceedings of the challenge by
NTPC relates to two broad areas, namely, (i) the question whether there was
indeed a nine-month extension given by the NTPC as evidenced by the
letters dated 11th September 1998, 22nd January 1999, 19th March 1999 and
13th December 1999; and (ii) whether the Award in respect of the individual
claims of NTPC as noticed hereinbefore is sustainable in law.
Nine Months' Extension of time
33. One of the major grounds of challenge by NTPC to the impugned
Award of the Tribunal on the issue of the nine month's EOT is that the
Tribunal failed to decide the dispute in accordance with the terms of the
contract which required SAG to complete several milestones. It is contended
that the impugned Award of the Tribunal violated Section 28 (3) of the Act.
Reliance is placed on the decisions in ONGC v. Saw Pipes (2003) 5 SCC
705, Hindustan Zinc Ltd. v. Friends Coal Carbonisation (2006) 4 SCC
445, State of Rajasthan v. Nav Bharat Construction Co. (2006) 1 SCC 86,
Delhi Development Authority v. R.S. Sharma and Company (2008) 13
SCC 80, GAIL v. Hindustan Construction Company (decision dated 9th
January 2012 in OMP No. 170 of 2004), and Harsaranjit Kocchar v.
Amalgamated Bean Coffee (decision dated 1st November 2011 in OMP No.
301/2010).
34. Clause 22 GCC which provides for SAG to claim compensation for
delays caused by NTPC reads as under:
"22.0 Delays by Owner or his Authorised Agents
22.1 In case the Contractor's performance is delayed due to any act
of omission on the part of the Owner or his authorised agents,
then the Contractor shall be given due extension of time for the
O.M.P. Nos. 229 and 230 of 2009 Page 15 of 42
completion of the Works, to the extent such omission on the
part of the Owner has caused delay in the Contractor's
performance of his work. Regarding reasonableness or
otherwise of the extension of time, the decision of the Engineer
shall be final.
22.2 In addition, the Contractor shall be entitled to claim
demonstrable and reasonable compensation if such delays have
resulted in any increase in the cost. The Owner shall examine
the justification for such a request for claim, and if satisfied, the
extent of compensation shall be mutually agreed depending
upon the circumstances at the time of such an occurrence."
35. For the purposes of Clause 22.1 GCC it had to be determined if there
was an act or omission on the part of the owner (NTPC) on account of which
performance of the contractor's (SAG's) obligation was delayed. Crucial to
Clause 22.2 was whether there was an owner-caused delay under Clause
22.1. If there was no such determination, the question of the contractor
being entitled to demonstrable and reasonable compensation under Clause
22.2 did not arise.
36. SAG claimed that there were Owner caused delays for 13.5 months'
during the initial stage for the first open cycle which was attributable to
NTPC. It claimed that NTPC had in 1998 accepted responsibility for 9
months' delay. SAG concedes that in the later stages of the project there
were delays attributable to it to the extent of 6 to 8 months for which NTPC
invoked Clause 21 GCC and deducted the maximum LD from SAG's
running bills. Though disputed, SAG did not challenge the imposition of LD
and the same was not part of the arbitration proceedings. According to SAG,
the period of 9 months came from NTPC itself. NTPC did not specify how it
had calculated the 9 months' period. NTPC treated the 9 months as separate
and distinct as compared to the overall delay to the project.
O.M.P. Nos. 229 and 230 of 2009 Page 16 of 42
37. The correspondence, which was examined by the Tribunal, has again
been referred to by learned Senior counsel on both sides. By a letter dated
2nd July 1991 NTPC wrote to SAG stating that "while there has been delay
in opening of L/C for the electrical items, we do not agree with your
contention that a time extension of 12.5 months is justified on this account."
It was pointed out that "there has been a delay of nearly 10 to 12 months in
indigenous supplies under the scope of Siemens Limited which is solely to
Siemens' account and can in no way be attributed to NTPC." Consequently,
it was stated that "we, therefore, do not agree with your contention regarding
additional cost to be borne by NTPC at approximately DM 3 million per
month due to delay in establishment of L/C for electrical items." By letter
dated 7th April 1992 NTPC asked BHEL to expedite the mobilization of the
erection activities. In a letter dated 22nd July 1992 NTPC informed SAG
with reference to interim claim of DM 35.0 million under Clause 22.0 of the
GCC and stated that if there were delays in executing the contract by
BHEL/SAG, they themselves were responsible for the delayed
commissioning of the project and that no delay could be attributed to the
owner.
38. By letter dated 22nd June 1993 the NTPC informed SAG that it had yet
to furnish details of the cost claim. It was pointed out that the issues raised
by SAG "relate only to certain aspects of delays in commissioning of the gas
turbine units in open cycle mode." However, there had been "overall
inordinate delays in commissioning of the gas turbine units in open cycle
mode and the combined cycle modules." It was further pointed out that "the
above issues would also need to be satisfactorily resolved before a final view
in the matter can be taken after commissioning of the combined cycle
modules." The above correspondence shows that the parties were still
negotiating on the question of their respective obligations and as to who
could be blamed for delays in commissioning of the overall project. It also
O.M.P. Nos. 229 and 230 of 2009 Page 17 of 42
appears that they were willing to wait for the commissioning of the
combined cycle modules before taking a final view.
39. Moving to the correspondence between the parties on the issue in 1997
and 1998, it is seen that in the letter dated 21st August 1997 SAG wrote to
NTPC stating that there were contract closing formalities which were
required to be attended to. Further, there were issues relating to
submission/acceptance of PG Test report of CC Mod-II, settlement of LDs,
extended warranties of equipment replaced by by-pass stacks, reconciliation
of Rs. 48 crore items, settlement of claims raised by SAG and other major
outstanding issues. The Tribunal referred to a letter dated 8th December
1997 written by SAG referring to meeting held with NTPC on 12th
November 1997 on cost claim. NTPC had indicated that only some part of
the claim would qualify for compensation and had insisted on list of
documents to justify the reasonableness of the claim. A reference was made
in the letter to Clause 22.2 of the GCC. Referring next to the letter dated 11th
September 1998 it is seen that it is formally written by NTPC to SAG
referring to SAG's letter dated 29th July 1998. In that letter SAG had pointed
out that the details demanded by NTPC on the claim for cost compensation
was beyond the contract stipulations as per Clause 22.2 of the GCC. It was
pointed out that "NTPC is requesting for more and more details which are
impossible to provide due to the reasons explained to you during our
meeting held on 8th July 1998."
40. SAG by its letter dated 29th July 1998 clarified its stand on the question
of delay in completion of project. It was stated that for the delay in
completion of the open cycle, no LD could be levied on the contractors since
the delay in opening the necessary LC led to an initial delay of about 15.5
months. By referring to the contractual dates on each of the Units 1, 2, 3 and
4 in relation to the Gas Turbine Generator it was pointed by SAG that "the
O.M.P. Nos. 229 and 230 of 2009 Page 18 of 42
factual delay is less than the delay caused by reasons beyond contractor's
control." In other words in its letter dated 29th July 1998 SAG was clearly
taking the position that there was an initial delay of 15.5 months in
completion of the project and the completion of the open cycle on account of
delays in combined cycle modules.
41. NTPC's letter dated 11th September 1998 was a reply to the above letter.
NTPC clarified to SAG that as per terms of Clause 22.2 of the GCC, only
reasonable and demonstrable costs incurred by the contractor could be
reimbursed in case of delays by the owner. Once again NTPC stated that
SAG was required to furnish necessary documents without any further delay.
Then the said letter dealt with each of the averments of SAG's letter dated
29th July 1998. NTPC stated that it could not be held responsible for delays
in procurement of Rs. 48 crore items. In para 2 of the said letter it was stated
as under:
"2. As regards delay in completion of open cycle, several
discussions were held with you where it has been clearly
indicated that the delays in arranging I/L and LC could
effect the project schedule by 9 months. As such it is not to
be construed that there cannot be any LD for delays in
completion of open cycle trial operations."
42. The next paragraph dealt with the delay in relation to combined cycle
module in terms of procurement of Rs. 48 crore items. In the last paragraph
a reference was made to the discharge of CPGs. Since there were a number
of outstanding issues NTPC stated that it was not in a position to concede to
SAG's request for discharge of CPGs. A request was made to SAG to
resume the contract closing meeting with NTPC in order to achieve contract
closing expeditiously. While SAG was claiming a delay of 15.5 months in
the open cycle, NTPC was claiming a delay of 9 months. Therefore, the
owner was acknowledging delay in the open cycle to the extent of 9 months
but not in the combined cycle or for the procurement of Rs. 48 crore items.
O.M.P. Nos. 229 and 230 of 2009 Page 19 of 42
43. The attempt made by learned Senior counsel for the Petitioner to
demonstrate that there was absolutely no acceptance by NTPC of any EOT
time is not based on a correct reading of above letter. The contention that by
a series of letters NTPC had in fact rejected the claim of SAG for EOT is
also not borne out by the above correspondence that took place between the
parties in the meanwhile particularly the letters of 1997 and July 1998 that
were mentioned earlier. NTPC only refers to the letter dated 11th September
1998 which has been discussed in some detail.
44. The letter dated 1st December 1998 from NTPC to SAG makes no
reference to letter dated 11th September 1998 but refers to a series of letters
dated 30th September, 1st October, and 7th October 1998 as regards cost
compensation. The stand of NTPC was that it was still willing to look into
the claim and settle the same amicably in case it was agreeable on the
number of titles of claims and furnish justification with documentary
evidence. By letter dated 14th December 1998 written by NTPC wrote to
SAG stating that the full LD @ 5% of contract price would be levied in
terms of the contract. In terms of Clause 21.3 GCC, SAG was advised to
indicate whether the recoveries were to be made from the first contract,
second contract or the third contract. SAG was again requested to furnish
further documents/details to substantiate its claim for cost compensation.
45. In its letter dated 22nd January 1999 NTPC insisted that it required
detailed documents. In Para 3.2 of the said letter under the sub-heading
'Contractual Work Schedule' NTPC stated as under:
"NTPC is willing to consider the implication of delay in
opening of LC to the extent of 9 (nine) months and
accordingly, shift the schedule for GTs as well as CCs for a
period of nine months from their respective contractual dates.
The delays in procurement of 48 crores items have also been
examined and we do not accept the extension sought by you
for 31.5 months on account of Rs. 48 crores package. In view
O.M.P. Nos. 229 and 230 of 2009 Page 20 of 42
of the above, we have already communicated vide letter dated
14th December 1998 regarding NTPC's decisions to levy full
LD @ 5% of the contract price."
46. The above letter is significant because it is an unequivocal expression of
NTPC's willingness "to consider the implication of delay in opening of LC
to the extent of nine months and accordingly shift the schedule for GTs as
well as CCs for a period of nine months from their respective contractual
dates." Mr. Dave referred to a letter dated 19th March 1999 addressed by
NTPC to SAG but it does not actually withdraw the statement made in Para
3.2 of the letter dated 22nd January 1999. In fact the said letter reiterates as
under:
"3.2 Contractual Work Schedule
As already conveyed vide our letter dated 22nd January 1999,
NTPC is willing to consider the implication of delay in
opening of LC to the extent of 9 (nine) months and
accordingly, shift the schedule for GTs as well as CC
Modules for a period of nine months from their respective
contractual dates. Further the trial operations of the CC
Modules could be achieved with delays of more than four
years with respect to original schedule. We, therefore, do not
agree to SAG's contention that delay in completion of CC
Modules is not attributable to Contractor(s) and reiterate
NTPC's decision to levy full LD @ 5% of the contract price
as communicated vide our letter dated 14th December 1998. In
this connection it may be noted that as per advice of SAG vide
letter dated 12th January 1999 BHEL have been requested to
remit the LD amount. However, BHEL have not complied
with. You are requested to take up with BHEL and ensure the
LD amount is made available to NTPC at the earliest."
47. This has to be viewed in light of the minutes of the meeting held on
6th/7th April 2000 and in particular Para 10.0 thereof in which the position
has been made clear as under:
"10.0 SAG requested that NTPC should look into the claims
raised by them with more positive approach in view of the fact
that there were delays, e.g., in arranging I/L and L/C by NTPC
in total amounting to 15 months approx. SAG stated that they
O.M.P. Nos. 229 and 230 of 2009 Page 21 of 42
have made above agreements on critical components with the
understanding that the claims shall be settled by NTPC keeping
above in view NTPC agreed to look into and revert back to
SAG."
48. The collective reading of the above letters it reveals that the Tribunal
has correctly concluded that there was indeed an EOT and there was
acceptance by the NTPC that delays of about nine months could be
reasonably attributed it on account of delayed opening of LCs. The
submission that there was not even a single communication from SAG from
1991 to 2000 wherein SAG had even implied that NTPC had granted or
agreed to grant an EOT is not correct.
49. Before the Engineer, SAG made a claim for compensation for nine
months' delay in terms of Clause 22.2 GCC. In terms of letter dated 16th
August 2001 the Engineer gave a decision on Claim No. C-3 "increased cost
for acceleration of Project Engineering Management and Co-ordination"
stating that "Siemens was not able to commission the GTs within extended
period of nine months since schedule date and as such no acceleration in
activities could be demonstrated. - Hence not tenable."
50. What was distinctly different as regards the stage of the final Award, in
comparison with the stage of the partial Award, was that witnesses of SAG
had been examined as had the witnesses of NTPC. For SAG Mr. Scharmann
appeared as witness of the company and Mr. L.C.H. Bunton appeared as an
independent expert. For NTPC Mr. S. Datta and Mr. A.K. Sinha appeared as
witness. NTPC did not produce an expert witness.
51. Mr. Scharmann was involved in the negotiations of the contract for
Dadri Project from mid 1988. He was also involved in the execution of the
contracts from their inception. On the other hand, NTPC's witness, Mr.
O.M.P. Nos. 229 and 230 of 2009 Page 22 of 42
Sinha admitted in his cross-examination that he had not been concerned with
the project during construction and was not directly involved in it, having
joined the project only in March 2007. Mr. Datta, the other witness of
NTPC, was a junior member and was not a party to the correspondence
between NTPC and SAG relating to owner-caused delay of 9 months. The
observation of the Tribunal in this regard in Paras 108 and 109 reflected the
correct picture and cannot be faulted.
52. NTPC has referred to the evidence of Mr. Scharmann. His answers to
Questions Nos. 118 to 127 are relevant and read as under:
"Q.118 Mr. Scharmann, could you come to page 348 the letter
of 11th September 1998. In paragraph 2 does it not record that
these claims have been found to be untenable and therefore,
rejected earlier?
A. Yes, May I clarify here. Untenable in the sense of values
behind it. There are several other letters available saying we
are ready to think over a cost compensation provided you are
giving more details. I do not have the exact wording now in
my mind.... what the meaning behind it. Untenable in this
sense means untenable with regard to the demonstrability as
requested by NTPC.
Q. 119 Is it correct that the letter at page 376 dated 22nd
January 1999 at 377 last sentence categorically says that in the
absence of documents and details to substantiate any claim,
the claim is not considered as tenable?
A. Yes. It is the cost claim. The claim was never on 9 months
or time. It was on cost. NTPC is referring to the cost claim.
Q. 120 Is it correct that earlier in 1991-92 you had made
similar claims which were considered by NTPC and rejected?
A. Yes.... they were rejected.
Q. 121. Did you get an extension of time for completion of the
works from the engineer?
O.M.P. Nos. 229 and 230 of 2009 Page 23 of 42
A. According to my recollection there have been some letters
extending the time but without contractual obligations. I do
not know in which core bundle?
Q.122. Was there any extension of time granted by the
Engineer to Siemens?
A. No.
Q. 123. Would you kindly turn to clause 22.1 of GCC. Does it
not contemplate an extension by the Engineer whose decision
is to be final?
A. Yes. It says so. May I also clarify that the Engineer only
comes into picture once there is a dispute. Then his decision is
to be final. That is now I read it.
Q. 124. And according to you there was no dispute about
extension between Siemens and NTPC?
A. We had asked for extension of time and extension was
granted.
Q. 125. Would you kindly turn to the 3rd line of Clause 22.1....
"then the contractor shall be given due extension of time for
the completion of the works ...." Does it not contemplate
request for extension of time at the relevant point of time
before works are completed?
A. We had asked for extension of time. We were told it will
be dealt with later at the project.
Q. 126. Your request for extension of time was rejected, is it
not?
A. The cost claim was rejected.
Q. 127. Was an extension of time granted in 1991-92?
A. We were told that it will be dealt with at the end of the
contract at a later date."
53. It is evident from the above answers of Mr. Scharmann that he was
O.M.P. Nos. 229 and 230 of 2009 Page 24 of 42
clearly making a distinction between the issue of cost claims for which
NTPC was insisting on documentation and question of nine months delay
which was accepted by NTPC in its correspondence. In fact when he was
directly asked whether request for EOT was granted, Mr. Scharmann replied
in the affirmative even while he was clear that SAG's cost claims were
rejected. A reference was made to the fact that there was a delay of 55
months in completion of the project and therefore, the delay of 9 months
which was accepted and attributable to NTPC should be considered to be
subsumed in the delay of 55 months. As rightly pointed out by learned
Senior counsel for the Respondent, Clauses 22.1 and 22.2 of the GCC
specifically focussed on the owner's delay and compensation that could be
claimed by the contractor for such delay. There was no reason why despite
of an overall of delay of 55 months in the completion of project, the parties
could not have agreed that for any part of the delay attributable to the owner,
the contractor could claim compensation. This is what SAG appears to have
successfully demonstrated in the arbitral proceedings.
54. As observed earlier, the documents available to the Tribunal at the stage
of partial Award, were also available to it for examination at the stage of the
final Award. It took a consistent view. Its decision was neither contrary to
the terms of reference or to the terms of the GCC or the applicable law. The
Court, therefore, negatives the contention of NTPC that the impugned
Award is liable to be set aside because the Tribunal failed to decide the
dispute in accordance with terms of contract, thus violating Section 28 (3) of
the Act. The submission that the Tribunal's final Award and partial Award
are not in accordance with the agreement between the parties and liable to be
set aside under Section 34 (2) (v) of the Act is also rejected.
55. The Court also finds no merit in the submission that the impugned
Award of the Tribunal contained a decision that was beyond the scope of
O.M.P. Nos. 229 and 230 of 2009 Page 25 of 42
submission to arbitration under Section 34 (2) (iv). The submission that
NTPC was prohibited from presenting its case under Section 34 (2) (iii) of
the Act is without basis. NTPC appears to have had a full opportunity of
presenting its defence in the arbitration proceedings throughout.
Whether the disputes were decided by the Tribunal in accordance with the
substantive laws of India?
56. The next major ground urged by NTPC is that the impugned Award is
liable to be set aside under Section 28 (1) (b) (i) of the Act because the
Tribunal failed to decide the disputes in accordance with the substantive law
in India. The basis for the above submission is that according to NTPC time
was the essence of the contract and this was a turnkey project. There were
milestones for completion of various stages of the project. There were
several stages by which these milestones had to be completed by SAG and
therefore, the question of NTPC alone being responsible for completing
these milestones could not be examined in isolation. The submission is that
all the various stages linked to form an integral part of the contract and
unless and until SAG had proved that it had completed its obligations well in
time as contemplated by the contract, NTPC could not be saddled and made
liable under the contract.
57. It is pointed out that the contract itself was for supply, erection, testing
and commissioning, including construction of all associated civil, structural
and architectural works for gas based combined cycle power project. SAG
was to prepare and submit a detailed erection, testing and commissioning
procedure for the equipment to be supplied by SAG and its associates in
India. A draft quality management plan was to be prepared by SAG and
discussed with NTPC and based on discussions, quality plans were to be
submitted to NTPC as per schedule. In the second part of Clause 7 (1) (b) it
was stipulated that manufacturing of equipments would not be started till
O.M.P. Nos. 229 and 230 of 2009 Page 26 of 42
quality plans were approved by NTPC. However, due to critical delivery
schedule "there are a few long lead items whose manufacture had to be taken
up prior to the contract effective date." SAG was to furnish field quality
assurance system manual and field quality plan for various field activities. It
was required that inspection procedure was to be finalised prior to
manufacturing and clearance of equipment was to be as per the finalized
inspection procedure only.
58. In terms of Annexure 5 read with Clause 15.1 SAG was to prepare
contract manufacturing and delivery schedule for each individual equipment
to enable NTPC to effect payments. The LC for the first quarter was to be
opened one month before the first shipment, but for subsequent quarters, the
updated amount for the LC was based on actual progress of work of the
respective quarter which was to be intimated by SAG six weeks' prior to
start of that quarter which required NTPC to establish LC for that quarter.
59. It is pointed out that the contract was conditional on KFW financing. It
is submitted that while the first instalment of initial advance of 15% and
interim advance of 10% was to be paid subject to condition in Column 4,
and Annexure V of the Contract, 50% was to be paid on production of
invoices and evidence of shipment including Material Dispatch Clearance
Certificate ('MDCC') issued by NTPC's Corporate QA and I
Representative. It is further submitted that while the LCs were agreed in
mode of payments, their establishment by NTPC was conditional upon
various tasks to be performed by SAG and except the first LC, the remaining
to be established according to the actual progress of work as intimated by
SAG. It is submitted that SAG had, in its claim, never adduced evidence to
prove that it had established the milestones provided in the contract whereas
the Minutes of the Meeting of the 5th Contract Review Meeting ('CRM')
produced by NTPC show that those milestones were totally neglected by
O.M.P. Nos. 229 and 230 of 2009 Page 27 of 42
SAG right from the beginning. It is submitted that this entire evidence is
glossed over by the Tribunal. A reference is made to the answers given by
the Expert Witness Mr. Bunton. It is submitted that the Tribunal's Award
ignores the very philosophy of turnkey contract and its terms.
60. Referring to Section 52 of the Contract Act, 1872 ('CA') which requires
performance of reciprocal promises, it is submitted that in view of SAG's
failure to fulfill its obligations in agreed manner resulting in actual delay in
shipment on account of delayed LCs, NTPC could not be held to have
breached its obligation. A reference has been made to Section 63 of the CA
and it is submitted that by series of acts SAG has dispensed with the
performance by NTPC in respect of LCs and/or in any event extended time
for such performance. It is submitted that since the Tribunal had failed to
address this submission, the Award was violative of Section 28 (1) (b) of the
Act. Further, the Tribunal had wrongly shifted the burden of proof on to
NTPC when in fact SAG had failed to prove that it had fulfilled its
obligations. Reliance is placed on the decisions in Keshavlal Patel v.
Lalbhai Mills [1959] SCR 213; Anandram Mangat Ram v. Bholaram
Tanumal AIR 1946 Bom. 1; Venkateswara Minerals v. Jugalkishore
Chiranjitlal AIR 1986 Kant. 14; Vegi Venkateswara Rao v. Venkatarama
Rao AIR 1998 AP 6;Manni Lal v. Bishun Dayal AIR 1930 Oudh 417;
State of AP v. Associated Engineering Enterprises AIR 1990 AP 294 and V
Chettiar v. K Mudaliar AIR 1925 Mad. 1029.
61. It is pointed out by SAG that there was nothing in the contract
identifying the funding from KFW as condition precedent. In fact in its letter
dated 26th October 1989 SAG accepted the Telex of Award upon the
conditions set out therein including one condition that the Letter of Award
(LOA) shall not be subject to approval of KFW. However, no objection of
KFW to the draft of a contract shall be applicable. It is pointed out that KFW
O.M.P. Nos. 229 and 230 of 2009 Page 28 of 42
by its letter dated 27th November 1989 approved the contract. Mr.
Scharmann also explained that while KFW was required to approve the
terms of contract it did not make the obligations of the parties dependent on
the arrangement of KFW funding. NTPC had in fact arranged for the LC for
the first Gas Turbine and for payment of the initial advance, before the KFW
Loan Agreement was signed. Indeed it does appear that the KFW funding
was not a condition precedent for the parties to perform their respective
obligations under the contract.
62. The argument of NTPC that the delay was the fault of the Government
of India and not NTPC did not find favour with the Tribunal. The respondent
SAG has alleged that NTPC delayed in establishment of L/C and I/L which
led to delay and disruption of programmed sequence of works. According to
SAG the aforesaid delay in turn delayed the supply of raw material and
components for manufacture of by-pass stacks/dampers which directly
affected the commencement and completion of by-pass stack dampers under
the 2nd contract.
63. As regards the quality plans, Clause 7.1 stated that the quality plan for
long lead items are summarized in Annexure I. This was even prior to the
signing of the contract. In Annexure I, it was further agreed that for
equipments supplied by SAG factories or from SAG's European sub-
contractors, they would be accepted by the owner (NTPC) without separate
justification or special approval. It is pointed out that Clause 7.7 concerning
the Field Quality Assurance system manual is not applicable for the
importation of the gas turbines. There was no requirement for approval of
the shipment imported from Germany for these items.
64. As regards the issue of storage of manufactured equipment due to delay
in LC's which was ready for shipment as a result of which SAG had suffered
O.M.P. Nos. 229 and 230 of 2009 Page 29 of 42
losses. On the other hand SAG pointed out that Mr. Scharmann had in his
witness statement, relied upon and proved the invoices for storage of
equipment and this was the best evidence available. The documents are
referred to show that the date of readiness of dispatch of equipment and
corresponding period of storage at Hamburg port. It is further submitted that
if the equipment had not been ready for shipment there would be no reason
for SAG to write several communications to NTPC to expedite the LC's.
65. As regards the contention that the project was a turnkey one, the
Tribunal had held conclusively, in para 114 of the final Award, that the
regime of the contract emphasized sectional completion with separate
milestones for each section. In granting nine months' EOT only at the stage
of opening LCs, NTPC had itself conceded this position. Clauses 22.1 and
22.2 in fact support the submission of SAG that the project was not a
turnkey one. This Court is therefore not, persuaded to hold that the Tribunal
erred in ignoring the evidence on record or the applicable law.
Scope of challenge to Award on individual items of claim
66. Before proceeding to deal with the challenge to the impugned Award
in respect of the individual claims, it is necessary to recapitulate briefly the
settled law in respect of the scope of judicial review of arbitral awards under
Section 34 of the Act. In ONGC v. Saw Pipes Ltd. (2003) 5 SCC 705, the
scope of the expression "public policy of India" in Section 34 of the Act was
explained thus: (SCC, p.727)
"31. Therefore, in our view, the phrase 'public policy of India'
used in Section 34 in context is required to be given a wider
meaning. It can be stated that the concept of public policy
connotes some matter which concerns public good and the
public interest. What is for public good or in public interest or
what would be injurious or harmful to the public good or public
interest has varied from time to time. However, the award
which is, on the face of it, patently in violation of statutory
O.M.P. Nos. 229 and 230 of 2009 Page 30 of 42
provisions cannot be said to be in public interest. Such
award/judgment/decision is likely to adversely affect the
administration of justice. Hence, in our view in addition to
narrower meaning given to the term 'public policy' in
Renusagar case it is required to be held that the award could be
set aside if it is patently illegal. The result would be--award
could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is
of trivial nature it cannot be held that award is against the
public policy. Award could also be set aside if it is so unfair
and unreasonable that it shocks the conscience of the court.
Such award is opposed to public policy and is required to be
adjudged void."
67. The said decision was further analysed by the later decision in
McDermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC
181 in which the Supreme Court undertook the exercise of comparing the
scope of challenge under the earlier Arbitration Act 1940 and the 1996 Act.
It was observed (SCC, p.209):
"58. In Renusagar Power Co. Ltd. v. General Electric Co AIR 1994
SC 860 this Court laid down that the arbitral award can be set aside if
it is contrary to (a) fundamental policy of Indian law; (b) the interests
of India; or (c) justice or morality. A narrower meaning to the
expression "public policy" was given therein by confining judicial
review of the arbitral award only on the aforementioned three
grounds. An apparent shift can, however, be noticed from the decision
of this Court in ONGC Ltd. v. Saw Pipes Ltd. (for short "ONGC").
This Court therein referred to an earlier decision of this Court in
Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly
(1986)3SCC156 wherein the applicability of the expression "public
policy" on the touchstone of Section 23 of the Indian Contract Act and
Article 14 of the Constitution of India came to be considered. This
Court therein was dealing with unequal bargaining power of the
workmen and the employer and came to the conclusion that any term
of the agreement which is patently arbitrary and/or otherwise arrived
at because of the unequal bargaining power would not only be ultra
O.M.P. Nos. 229 and 230 of 2009 Page 31 of 42
vires Article 14 of the Constitution of India but also hit by Section 23
of the Indian Contract Act. In ONGC this Court, apart from the three
grounds stated in Renusagar, added another ground thereto for
exercise of the court's jurisdiction in setting aside the award if it is
patently arbitrary.
59. Such patent illegality, however, must go to the root of the matter.
The public policy violation, indisputably, should be so unfair and
unreasonable as to shock the conscience of the court. Where the
arbitrator, however, has gone contrary to or beyond the expressed law
of the contract or granted relief in the matter not in dispute would
come within the purview of Section 34 of the Act. However, we
would consider the applicability of the aforementioned principles
while noticing the merits of the matter.
60. What would constitute public policy is a matter dependant upon
the nature of transaction and nature of statute. For the said purpose,
the pleadings of the parties and the materials brought on record would
be relevant to enable the court to judge what is in public good or
public interest, and what would otherwise be injurious to the public
good at the relevant point, as contradistinguished from the policy of a
particular Government. (See State of Rajasthan v. Basant Nahata
(2005)12SCC77)
68. In Ispat Engg. & Foundry Works v. SAIL (2001) 6 SCC 347 the
Supreme Court reminded that: (SCC p. 350, para 4)
"4. Needless to record that there exists a long catena of cases through
which the law seems to be rather well settled that the reappraisal of
evidence by the court is not permissible. This Court in one of its latest
decisions (Arosan Enterprises Ltd. v. Union of India ( 1999 ) 9 SCC
449) upon consideration of decisions in Champsey Bhara & Co. v.
Jivraj Balloo Spg. & Wvg. Co. Ltd. AIR 1923 PC 66, Union of India v.
Bungo Steel Furniture (P) Ltd. AIR 1967 SC 1032, N. Chellappan v.
Kerala SEB ( 1975 ) 1 SCC 289, Sudarsan Trading Co. v. Govt. of
Kerala ( 1989 ) 2 SCC 38, State of Rajasthan v. Puri Construction Co.
Ltd. ( 1994 ) 6 SCC 485 as also in Olympus Superstructures (P) Ltd. v.
Meena Vijay Khetan ( 1999 ) 5 SCC 651 has stated that reappraisal of
evidence by the court is not permissible and as a matter of fact,
exercise of power to reappraise the evidence is unknown to a
proceeding under Section 30 of the Arbitration Act. This Court in
Arosan Enterprises categorically stated that in the event of there being
no reason in the award, question of interference of the court would not
arise at all. In the event, however, there are reasons, interference
O.M.P. Nos. 229 and 230 of 2009 Page 32 of 42
would still be not available unless of course, there exists a total
perversity in the award or the judgment is based on a wrong
proposition of law. This Court went on to record that in the event,
however, two views are possible on a question of law, the court would
not be justified in interfering with the award of the arbitrator if the
view taken recourse to is a possible view. The observations of Lord
Dunedin in Champsey Bhara stand accepted and adopted by this
Court in Bungo Steel Furniture to the effect that the court had no
jurisdiction to investigate into the merits of the case or to examine the
documentary and oral evidence in the record for the purposes of
finding out whether or not the arbitrator has committed an error of
law. The court as a matter of fact, cannot substitute its own evaluation
and come to the conclusion that the arbitrator had acted contrary to the
bargain between the parties."
69. The above legal position was reiterated in Ravindra Kumar Gupta and
Company v. Union of India (2010) 1 SCC 409. It said (SCC, p.413): "that
the High Court committed a serious error in reappreciating the evidence led
by the parties before the arbitrator. This evidence was duly scrutinized and
evaluated by the arbitrator." It was also observed that the arbitrator had
given elaborate reasons with regard to the claim in question and therefore
the findings recorded by the arbitrator could not be said to be either perverse
or based on no evidence. The court held that a firm finding had been
recorded under the claim in question by the arbitrator which was erroneously
substituted by the High Court with its own opinion on appreciation of the
evidence. "Such a course was not permissible to the High Court while
examining objections to the award under Section 30 of the Arbitration Act,
1940." In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities
(P) Ltd. (2012) 1 SCC 594 the Court explained that the proceedings under
Section 34 of the Act are not of an appellate nature. It said (SCC, p.601): "A
court does not sit in appeal over the award of an Arbitral Tribunal by
reassessing or re-appreciating the evidence. An award can be challenged
only under the grounds mentioned in Section 34(2) of the Act."
O.M.P. Nos. 229 and 230 of 2009 Page 33 of 42
Claim No.2: Disruption and delay of project engineering, management
and coordination
70. Claim No.2 was for DM 3,314,106.00 towards disruption and delay of
project engineering, management and coordination. NTPC's case was that
project engineering management and coordination were independent of
availability of import licence and opening of LC and SAG was contractually
bound to perform the aforesaid activities upon award of the contract for
which initial payments (25%) were made by NTPC as per contract. Mr.
Scharmann had admitted in his cross examination that manufacturing had
been started irrespective of opening of LC. Further, NTPC expressed its
concern about delays in Civil Design and Construction Activities which was
acknowledged by SAG in various CRMs and letters and SAG agreed to
augment its civil design etc. in Germany. Further, there were manufacturing
delays by SAG and equipments were not shipped even after opening of LC.
71. SAG's case was that the workers were in fact underutilised. The
workers who were employed to build the gas-fired power station could not
progress with construction without the gas turbines themselves. Mr.
Scharmann confirmed that manufacturing had begun during the period of
delay, not that the SAG core project engineering, management and co-
ordination team were properly utilised.
72. The Tribunal noted that an efficient organisation of a project of this
magnitude required a team to be established by the contractor and for that
matter, by the owner as well. It was usually not possible to disband a team
either in whole or in part and then to reassemble it quickly. NTPC had the
power to suspend the contract, but chose not to exercise it. The Tribunal
noted that SAG had provided "extensive documentary details of the activity
of team members to demonstrate disruption and delay and these documents
have been audited by Mr. Bunton." The Tribunal's conclusion that the steps
O.M.P. Nos. 229 and 230 of 2009 Page 34 of 42
SAG took with respect to the allocation of work were reasonable was based
on an appreciation of evidence. It was rightly observed that "it is a principle
of mitigation of loss, that the injured party need only take reasonable steps"
and that steps in mitigation does not have to result in cost saving. This Court
is unable to find any error in the above
Claim No. 3: Acceleration Costs Of Project Engineering Management and
Coordination
73. NTPC submits that the various CRMs acknowledged that there were
concurrent and overlapping delays by SAG's consortium partners for the
coordination of which SAG was responsible. It is contended that SAG has
not provided any details of specific engineering activities allegedly
accelerated and attributable to alleged delays arising out of the late opening
of the LCs. It is submitted that the claim made by SAG for man hours in
respect of various engineering activities is vague and not specific. Reference
is made to evidence of Mr. Datta and Mr. Sinha. There was substantial delay
caused by BHEL and Siemens India Ltd. (SI) in the erection activities and
supply of material for the by-pass Stack. SAG was responsible for
supervision and coordination of the activities of BHEL and SI. It is
submitted that the Arbitral Tribunal has not considered any of the aforesaid
contentions raised by NTPC and instead has observed that NTPC has not
presented any evidence on quantum to counter SAG's evidence and has
proceeded to allow the claim fully.
74. SAG submits that it claimed acceleration costs because it was NTPC
that demanded acceleration of the activities. Reference is made to the
evidence of Mr. Scharmann and Mr. Bunton. It is contended that NTPC's
allegations regarding concurrent delays is without proper analysis. The delay
in opening LCs was on the critical path. After the LCs were opened, NTPC
asked SAG to "further intensify their expediting efforts". SAG maintains
O.M.P. Nos. 229 and 230 of 2009 Page 35 of 42
that it explained its claim in detail to the Engineer and in the Second Witness
Statement of Mr. Scharmann. It is pointed out that NTPC has not analysed
the alleged delays caused by BHEL and SI to show that they were
concurrent.
75. The Tribunal noted that Mr. Scharmann was not cross-examined in
relation to this claim apart from in relation to the overall delay period of 55
months. It held: "there is no doubt that the cost of acceleration requested by
NTPC was a direct consequence of the initial nine months of delay, thus
satisfying an applicable criterion of clause 22.2. Secondly, the claim related
to the open cycle stage and Mr. Scharmann's evidence was that the
acceleration did serve to counteract the delay in the open cycle." Further, it
pointed out that NTPC failed to present evidence on quantum to counter Mr.
Scharmann's evidence and the detailed submissions of Mr. Bunton on costs.
This again being a matter of appreciation of evidence does not warrant
interference by the Court.
Claim No.4-Additional Travel Cost
76. This claim was for a sum of DM 425,955. NTPC submits that it never
requested anyone from SAG to undertake extra travel for which the claim
was made. SAG was required to coordinate activities of its consortium
partners in addition to its own obligations under the contract. The concurrent
and overlapping delays by SAG and its partners could have necessitated the
alleged extra travel by its personnel. Further, the period 18th March1990 to
7th April1991 for which the extra travel was claimed was also the period of
delay by BHEL and SI.
77. SAG points out that the claim is for the travel costs during the delay
period when NTPC continued to ask SAG people to travel to India,
O.M.P. Nos. 229 and 230 of 2009 Page 36 of 42
notwithstanding the fact that the project had been delayed. Further, NTPC
could have checked its own records, but did not do so. There was no
evidence from NTPC to suggest that the travel was the result of any delays
on the part of BHEL or SI.
78. The Tribunal analysed the evidence of Mr. Scharmann and Mr. Bunton
in some detail and concluded:
"Clause 22.2 of the GCC requires extra costs claimed to be
demonstrable and reasonable. It is clearly demonstrable that additional
meetings with travel and related expenses being incurred would have
taken place. In the Tribunal's view, in the light of the evidence before
it, is reasonable to accept the amount claimed. Mr. Bunton checked
the method by which Siemens' staff claimed expenses. As he rightly
says, this system depends on the integrity of those using it. There is no
reason for the Tribunal to doubt either the integrity of the system or
those who used it.
There is one further point. If NTPC was convinced that this claim was
exaggerated it could, from its own records, have made its own
analyses of the meetings with Siemens and produced records of its
own internal meetings at which NTPC ath4ressed the effect of delay
and disruption which its failure to obtain import licences and letters of
credit had caused. NTPC have produced no evidence of this kind at
all."
79. NTPC is unable to persuade this Court to hold the conclusion of the
Tribunal as regards Claim No.4 to be patently illegal.
Claim No. 5-Enforced storage of Material Equipment, and Machinery
80. NTPC contends that it was not contractually bound to open the LC prior
to signing of the loan agreement. In terms of Clause 1.02.00, no
material/equipment shall be dispatched from the manufacturer before being
tested/ inspected/ accepted by the owner's engineer. Further, in terms of
Clause 13.4, upon contractor's inspection call that the material is ready for
testing/dispatch, the owner engineer will witness the tests/inspect the test
O.M.P. Nos. 229 and 230 of 2009 Page 37 of 42
reports and after acceptance, give clearance for dispatch. Dispatch payment
in turn is to be released on submission of evidence of shipment including
MDCC. Contractor will then request for opening of LC for the payments
receivable in the next quarter for the material to be dispatched in that
quarter. It is claimed that all LCs were opened by NTPC prior to issuance of
MDCCs and therefore there was no delay in the opening of the LCs. On the
contrary, SAG had not utilized the LCs fully since the equipment was not
ready for dispatch. Further, Mr. Scharmann admitted that no documents in
support of goods being ready for shipment were available on record.
81. SAG counters the above submission by pointing out that in terms of
Article 15 of the contract, NTPC was bound to open LCs in accordance with
the schedule. The loan agreement with KFW was not a condition precedent
to the schedule. The MDCCs were a paper exercise that did not involve
visits to the manufacturing locations, and were required for payment
purposes. There is no evidence on record about inspection during or after the
manufacturing process. None of the equipments was rejected by NTPC, so
even if there was a delay in opening the MDCCs, the equipment was in fact
ready at the start of the storage period. Further, MDCCs were not the same
as inspection certificates. NTPC was required to, and did not, show that
these were "true" concurrent delays in the sense of being the result of
relevant events which were independent of the delays already caused at this
time by the delay to the LC.
82. The Tribunal noted: "Having regard to the MDCC issue, the Tribunal
has no reason to believe that Siemens' case in this respect is ill-founded or
wrong in any material particular. NTPC has failed to produce any evidence
to rebut Siemens' case and the claim is therefore allowed in full". It is seen
that Mr. Scharmann spoke about the storage invoices which were placed on
record. He testified that the said invoices related to equipment, the shipment
O.M.P. Nos. 229 and 230 of 2009 Page 38 of 42
of which was delayed in the initial period. The relevant documents were also
audited by Mr. Bunton. This again therefore involved appreciation of
evidence by the Tribunal. The Court is not expected to sit in appeal by re-
appreciating the evidence.
Claim No.6: Extension of the CPG
83. This claim was for DM 305,783.00. NTPC submits that the purpose of
Contract Performance Guarantee (CPG) was to secure successful completion
and performance of the entire contract and had to be kept alive till discharge
of all obligations under the contract. Further, the CPGs were in any case
required to be extended during the period of claim since the project was
finally completed after an overall delay of 55 months. SAG points out that
the claim is for the fact that the CPGs had to be extended for 9 months
longer than they should have been as a result of the delay for which NTPC is
responsible.
84. The Tribunal referred to the evidence of Mr. Scharmann who explained
the nature and scope of the CPGs. In his report Mr. Bunton confirmed the
amounts claimed and his cross-examination did not shake his report. With
the Tribunal having found that NTPC had agreed to a nine-month EOT, the
CPGs necessarily were required to be kept alive for the extended period.
The Tribunal's conclusion in allowing this claim cannot be faulted.
Claim No. 7-Delayed payments incurring increased financing charges
85. NTPC submits that SAG was not able to utilize the LC amount in
various quarters because the equipments were not ready for dispatch.
Further, the list of mandatory spares had to be supplied by SAG in terms of
Article 23 of the Contract. The said list was finalized by SAG only on 21st
May 1992. SAG was entitled for payment only on MDCC and proof of
dispatch. LCs were opened before issuance of MDCCs in respect of the
O.M.P. Nos. 229 and 230 of 2009 Page 39 of 42
equipments listed in this claim. Further, no evidence has been furnished by
SAG to show that the equipment was ready. It was admitted by Mr
Scharmann that no identification of the equipment was available which
could be correlated with dispatch and storage to claim increased cost.
86. SAG submits that its claim concerns the delay in receiving payment for
the equipment that was shipped. There was a separate claim for the delay in
receiving the interim advance and the final payment for the project. The
equipment was approved at the end of the storage period, which must mean
that it was ready at the start of the storage period. SAG could not issue its
invoice for the interim advance until NTPC's Engineer had issued his
certificate. The delay resulted from the fact that the Engineer did not issue
his certificate. Eventually SAG issued the invoice without waiting for the
certificate. The storage invoices showed that the equipment was being
stored. The billing break-up showed the actual shipping date.
87. On this claim the Tribunal reasoned: "The life blood of contracts of this
kind is cash flow. When payment obligations are not met on time, the
contractor either has to finance expenditure from his own resources, or
borrow, or both. Siemens lost the use of money due under the contract, but
paid late, due to the late opening of letters of credit in the nine months delay
in the initial stages. The calculation of what was lost by delayed payments is
straightforward. The only questions are the applicable rate of interest and the
applicable dates from which interest should be calculated." The Tribunal
referred to the evidence of Mr. Scharmann and Mr. Bunton to conclude that
7.5% was a reasonable rate to be adopted for this claim. The said finding is
unexceptionable.
Claim No. 8-Head Office Overhead & Profits
88. NTPC submits that the extent of delay is not clearly established since
SAG admits that the period of nine months was not an identified period.
O.M.P. Nos. 229 and 230 of 2009 Page 40 of 42
Further there was no evidence on record to show that overheads claimed
were actually incurred. The alleged loss was also not reflected in balance
sheets of SAG. No documentary evidence was made available to support
SAG's claim except the statement of Mr. Scharmann. SAG submits that this
is a new argument, not previously raised in the arbitration. Mr. Scharmann
confirmed that the loss of contribution to the head office overheads and
profits is not reflected in the balance-sheet. However, the loss claimed could
be derived from the audited accounts by the application of the Emden
Formula. In fact the Tribunal has, in allowing this claim adopted the Emden
Formula which has been recognised by the Supreme Court as well. Nothing
has been shown by the NTPC to doubt the correctness of this conclusion.
89. As regards NTPC's submission that the sum awarded by the Tribunal to
SAG was nearly 60% -70% of the contract price, it is clarified by SAG that
this submission is factually incorrect. In para 155 of the final Award the
Tribunal summarised the total value of the claims of SAG and the amount of
the claims which have been awarded to the SAG. It is pointed out that the
amount awarded is less than 10% of the total contract price of the first
contract. It appears that NTPC had converted the amount in foreign
exchange to Indian rupees at the prevailing exchange rates but it did not
convert the contract price in foreign exchange to Indian rupee at the
prevailing rates.
Conclusion
90. For all the aforementioned reasons, this Court is not persuaded to
interfere with either the partial Award dated 31st July 2002 or the final
Award dated 6th January 2009 of the International Court of Arbitration of the
International Chamber of Commerce in exercise of its powers under Section
34 of the Act. The challenge by NTPC to the rejection of its counterclaims is
also rejected.
O.M.P. Nos. 229 and 230 of 2009 Page 41 of 42
91. The petitions are dismissed with costs of Rs. 50,000/- each which shall
be paid by the Petitioner NTPC to the Respondent SAG within four weeks
from today.
S. MURALIDHAR, J.
APRIL 26, 2012 s.pal/rk O.M.P. Nos. 229 and 230 of 2009 Page 42 of 42