Delhi District Court
Omp (Comm) No. 1/2 vs Dcm Shriram Industries Ltd on 31 May, 2023
IN THE COURT OF SH. AJAY KUMAR JAIN:
DISTRICT JUDGE COMMERCIAL COURT 03 SOUTH EAST
DISTRICT, SAKET COURTS, NEW DELHI.
IN THE MATTER OF:
OMP (COMM) NO. 1/20
RE Connect Energy Trading
Through its Chairman-cum Managing Director
Office at : C-216, 2nd Floor, Nirvana Country,
Nirvana Courtyard, Sector-50, Gurgaon,
Haryana- 122018 ....Petitioner.
Versus
DCM Shriram Industries LTD.
Office at : 6th Floor, Kanchenjunga Building,
18, Barakhamba Road, New Delhi- 110001 ....Claimant/Respondent
Date of Institution : 24.12.2019
Date of Arguments : 24.05.2023
Date of Judgment : 31.05.2023
JUDGMENT
1. Vide this judgment, I shall dispose of the petition under Section 34 (2) (b) (ii) of the Arbitration and Conciliation Act, filed by the petitioner to set aside the arbitral award dated 14.10.2019 by the Ld. Sole Arbitrator.
2. Brief facts of the case are that claimant/respondent entered into an agreement dated 18.12.2013 with respect of trading of REC. As per this agreement, petitioner has to trade RECs on behalf of the claimant based OMP (COMM) 1/20 dt 31.05.2023 Page 1 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd. on their instructions. The another agreement was also executed between the parties for trading of RECs on the platform of IEX as the petitioner happened to be registered member of IEX. On 23.04.2018 at 11:33 a.m., the petitioner sent an email to the claimant informing the floor price of Rs. 1,000/- for both solar and non-solar RECs and also asking the claimant to inform about the bid data by Tuesday, 24 th April by 11:00 a.m. The claimant sent their bid for sale of RECs by email dated 24.04.2018 at around 01:16 p.m. to the petitioner thereby instructing to sell projectwise RECs, 5 from one project and 1275 from another project at a price of Rs. 1,000/- per REC, however, claimant sent its revised bid for sale for sale of RECs at 12:12 p.m. on 25.04.2018, instructing the petitioner to sell 5 RECs from one project and 28,521 RECs from another project at a price of Rs. 1,500/- per REC.
3. On 25.04.2018, claimant received an email at 4:30 p.m. from the petitioner that due to lot of confusion with respect to solar trade, they not able to change the price of RECs. Another mail was received by the claimant from the petitioner on 25.04.2018 at 11:33 p.m., wherein it was indicated that the market clearing price for non-solar REC on 25.04.2018 at IEX was Rs. 1,001/- per REC and that the entire RECs of 28526 (28521+5) had been sold at the rate of Rs. 1,001 per REC. On 30.04.2018, the petitioner sent an email to claimant that they were unable to change the trade bid on 25.04.2018 and bid was placed on the basis of bid received on 24.04.2018.
OMP (COMM) 1/20 dt 31.05.2023 Page 2 of 26Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
4. On 30.04.2018, the claimant sent a legal notice to the petitioner seeking compensation for losses incurred price for a total sum of Rs. 1,42,34,474/-. A Conciliation Committee was found, however, the matter cannot be resolved, therefore, arbitration proceedings were initiated. The Ld. Sole Arbitrator vide impugned order dated 14.10.2019 awarded a sum of Rs. 56,00,000/- (Rupees Fifty Lac Only) in the favour of claimant/respondent to be paid within one month of award and for any delay in payment beyond one month, petitioner is also liable to pay interest of 9 % per annum.
5. Ld. counsel for the petitioner submits that claimant/respondent had placed no material before the Tribunal to show that they suffered the losses, however, the Tribunal re-written the contract between the parties, re-defined the relationship between the parties to give benefit to the respondent and awarded damage to the respondent in contravention to the contract. Ld. Counsel submits that Tribunal was wrong in concluding the relationship between the parties as of 'agency' contrary to Article 6.1 of the Trading Services Agreement. Even in an 'agency' relationship, a principle cannot claim damages from the agent for a bonafide mistake in his work. The petitioner cannot be said to have acted in a negligent manner. The Tribunal failed to appreciate that the petitioner attempted to implement the instructions given by the respondent at the last moment, but because of very short time window, petitioner unable to give effect to the change and this cannot be attributed to the willful default. The OMP (COMM) 1/20 dt 31.05.2023 Page 3 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd. Bye-laws and Business Rule of IEX not containing any time-line for conveying the bid before commencement of trading session which cannot give unbridled right to the respondent to go on revising the bids at last moment. Furthermore, for the claim for damages no remote damages can be sustained. The claim for damages can never be on the basis of future data/assumption. Ld. Counsel submits that on the said data there is no bid which is up to Rs. 1,500/- per REC, therefore, it cannot be said that there was a direct loss.
6. The damages of the claim on the basis of Rs. 1,500/- per REC is hypothetical particularly when the claimant/respondent did not actually hold on to the RECs but from May 2018 to December 2018, sold more than 30,000 RECs at a price less than Rs. 1,500/- per unit. As per Article 6.4 of the Trading Agreement, the respondent's liability under the contract would not exceed the amount received in fees for the services provided. Therefore, no damages can be passed against the petitioner. The claimant has no absolute right to go on revising the bids.
7. Ld. counsel for the petitioner submits that this impugned award is challenged U/s 34 (2) (a) (iii) and (v), and there is no report of expert to arrive the calculation of damages. The petitioner is not given an opportunity to have any say over the calculation of the damages which is a valid ground of challenge U/s 34 of Arbitration and Conciliation Act. Furthermore, there is specific provision in the agreement that in case of any default, the liability amount cannot exceed the amount received in OMP (COMM) 1/20 dt 31.05.2023 Page 4 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd. fees for the services provided. (relied upon 'Ssangyong Engineering and Construction Company Limited Vs. National Highways Authority of India (NHAI), 2019 (15) SCC 131').
8. Ld. counsel for the respondent/claimant on the other hand submitted that the petitioner despite duly acknowledging the email to revise the rate to Rs. 1,500/- per REC, unilaterally proceeded to quote the amount at Rs. 1001/- per REC in total disregard to claimant's instructions. Ld. Counsel submits that there are no disputes over receiving of emails, over revision of bid price, however, despite the revision the petitioner sold 28526 RECs at rate of Rs. 1001/- instead of Rs. 1500/- thereby causing a loss of Rs. 499/- per REC and the total loss of Rs. 1,42,34,474/-. It is admitted case on the petitioner that they have caused the loss and apologized for their conduct vide email dated 25.04.2018 and 30.04.2018. The reasons attempted by the petitioner that is confusion of solar and non-solar is also baseless. The present petition is filed as an appeal, however, in present jurisdiction, this court cannot entertain merits of the case. This petition is filed U/s 34 (2) (b) (ii) of Arbitration and Conciliation Act, however, the petitioner unable to disclose as to in which manner the award is in conflict with public policy of India. The Ld. Arbitrator after analysis the CERC (Power Market) Regulations, By-laws of IEX, business rules of IEX came to conclusion that the regulations do not provide for any time-line for submission of bid by the client before start of trading session. As per clause 18.9, the OMP (COMM) 1/20 dt 31.05.2023 Page 5 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd. member shall act promptly in accordance with the instructions issued by the clients. Therefore, there is relationship of agent-client relationship. The petitioner is not mere agency of the claimant, there is no principle agent relationship in present transactions. The Ld. Arbitrator concluded that the averments in the agreement cannot supersede the provisions of by-laws and business rules of IEX which are binding on the parties. Clause 8 of Schedule C of Business Rules only provides biding sessions shall be from 13 hours to 15 hours. Clause 9.2 provides that the members can modify or cancel their hours during trading hours. As per Article 2.1 of the Trading Agreement, it is clear that petitioner has to trade REC on behalf of the claimant on its instructions. The petitioner could have amended the bids at correct price before closing of bid at 3:00 p.m. and it was not done. The Ld. Arbitrator have taken a very reasonable view and adopted a minimum price of Rs. 1200/- per REC received by the claimant during July 2018 to January 2019, though, the price has also touched Rs. 1501/- per REC. The claim was for Rs. 499/- per REC, however, the Ld. Arbitrator granted Rs. 199/- per REC (Rs. 1200-1001) and for 28526 RECs total loss calculated is Rs. 56,00,000/-. There is fiduciary relationship between the parties. The petitioner admitted their guilt and apologized for their conduct, however, the reason given that they got confused is misconceived and not tenable. The loss is due to the negligent of the petitioner and therefore, it is to be compensated. The Ld. Arbitration have took very reasonable view over OMP (COMM) 1/20 dt 31.05.2023 Page 6 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd. calculation of compensation. Even other, this court cannot re-appreciate the evidence. Ld. Counsel submits that no grounds made out to challenge the award, hence, the present petition is liable to be dismissed.
9. Written submissions also filed by both the parties.
10. Arguments heard. Record perused.
11. The relevant paras of the impugned award are reproduced as under :
"...Analysis and decision 73 Let me first examine if any loss has been caused to the Claimant by the Respondent by not following the instructions of the Claimant. To assess this, let me examine the data of trading conducted by the Respondent on behalf of the Claimant from May, 2018 onwards.
74 The detailed data for sale of RECS by the Respondent on behalf of the Claimant on IEX from May,2018 onwards as furnished by the Respondent is attached as Exhibit-l. 75 The position of clearing price per REC at the two Exchanges namely, IEX and PXIL and the RECS sold by the Respondent on behalf of the Claimant from May,2018 to March, 2019 has been summarized as under :
REC Clearing REC
Power Power Cleared Clearing Price
Month Cleared Price Month
Exchange Exchange **
* ** *
IEX 0 1010 IEX 5000 1260
May, 18 Nov., 18
PXIL 0 1000 PXIL 5000 1252
IEX 0 1150 IEX 5000 1320
June, 18 Dec., 18
PXIL 0 1050 PXIL 2500 1255
IEX 5000 1200 IEX 3265 1500
July, 18 Jan., 19
PXIL 0 1050 PXIL 3265 1501
IEX 0 1200 IEX 0 1395
Aug, 18 Feb., 19
PXIL 0 1300 PXIL 0 1555
IEX 0 1100 IEX 0 1500
Sept., 18 March., 19
PXIL 0 1101 PXIL 0
IEX 5000 1251
Oct., 18
PXIL 2500 1201
*REC sold by the Respondent on behalf of the Claimant **Clearing price of REC in Rs per REC at power exchange 76 It is seen that the clearing price of REC on IEX increased from June, 2018. It is seen that in June, 2018, the Respondent OMP (COMM) 1/20 dt 31.05.2023 Page 7 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
bid a price of Rs 1500/- per REC on the instructions of the Claimant but the same could not be sold as the clearing price on IEX was only Rs 1150/- per REC. From July, 2018 to January, 2019, the Claimant has been offering to sell some RECS at price between Rs 1200 to 1250 and some RECS at price varying from Rs 1300 to Rs 1500 in slabs. It is also seen that the Claimant has not bid anytime below Rs 1200/- per REC. From July, 2018 to March, 2019, the price per REC has remained between Rs 1200/- to Rs 1500/- Rs 1500/- except in September,2018 when the price went down to Rs 1100/-. However, the Claimant did not sell any REC in September as it had bid at Rs 1200/- and above. Similar rising trend has also been seen at PXIL.
77 If the Respondent had revised the price to Rs 1500/- per REC along with the quantity as per the revised instruction of the Claimant in the bidding that took place on 25.04.2018, the 28526 RECS of the Claimant would not have been sold on 25.04.2018. It is clear from the above data that if the Claimant had sold these 28526 RECS between July, 2018 to March,2019, they would have received a higher price. The minimum price they would have received per REC would have been Rs 1200/- per REC and maximum price Rs 1555/- per REC.
78 In view of above, it is clear that the Respondent by not strictly complying with the revised instructions of the Claimant has caused financial loss to the Claimant. The loss is not hypothetical and imaginary as evident from the trend of the REC price in the power exchanges between July,2018 to March,2019. It is also seen that the Respondent had sold 36530 RECS on behalf of the Claimant between July 2018 to January,2019 at price ranging from Rs1200/- to Rs 1501/-. The price that the Claimant received per REC for 28526 RECS in bidding held on 25.04.2018 was Rs 1001/- only. Therefore, the financial loss incurred by the Claimant due to non- compliance of instructions of the Claimant by the Respondent is real and is not imaginary or hypothetical and has been caused directly due to the wrongful act of the Respondent.
79 As per section 73 of the Indian Contracts Act, 1872 when a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which normally arose in usual course of things from OMP (COMM) 1/20 dt 31.05.2023 Page 8 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not likely to be given for any remote and indirect loss or damage sustained by reason of breach. 80 As per section 211 of the Contracts Act, an agent is bound to conduct the business of his principal according to the direction given by the principal. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal. 81 Section 212 of the Contracts Act, provides that an agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business unless the principal has notice of his want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill, or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill or misconduct.
82 Clause 6.4 of the Trading Agreement is as under:
6.4 Limitation of Liability Save as otherwise determined by any court of law, arbitration or other legal provisions, RET's total liability to Client due to any reason shall not exceed the amount received in fees for services provided.
Client shall bring any claim relating to the Services or otherwise under this Agreement within 12 months of completion of Services.
83 Clause 6.6 of the Agreement provides for applicable law and dispute resolution. It provides for arbitration in accordance with the procedures in the agreement and Rules of Indian Council of Arbitration ('Rules') or such rules and procedure as the parties may agree.
84 Thus, the parties were aware about the consequences of any breach of the agreement. The Clause 6.4 stipulates limitation of liability of the Respondent to its Client to fees for services but there is a saving clause for liability as determined by any court of law, arbitration or other legal provisions. Therefore, a higher compensation can be granted in the Arbitration.
85 In [1949] 2 K.B. 528 Victoria Laundry (Windsor) LD v Newman Industries LD the Court of Appeal held as under:
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"[1] It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, as far as money can do so, as if his rights had been observed: (Sally Wertheim v. Chicoutimi Pulp Company). This purpose, if relentlessly pursued, would provide him with a complete indemnity for all loss de facto resulting from a particular breach, however improbable, however unpredictable. This in contract at least, is recognized as too harsh a rule. Hence, [2] In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably forseeable as liable to result from the breach.
[3] What was at that time reasonably as forseeable depends on the knowledge then possessed by the parties or, at all events, by the party who later commits the breach.
[4] For this purpose, knowledge "possessed" is of two kinds; one imputed, the other actual. Everyone, as a reasonable person, is taken to know the "ordinary course of things" and consequently what loss is liable to result from a breach of contract in that ordinary course. This is the subject matter of the "first rule" in Hadley v. Baxendale. But to this knowledge, which a contract-breaker is assumed to possess whether he actually possesses it or not, there may have to be added in a particular case knowledge which he actually possesses, of special circumstances outside the "ordinary course of things" of such a kind that a breach in those special circumstances would be liable to cause more loss. Such a case attracts the operation of the "second rule" so as to make additional loss also recoverable.
[5] In order to make the contract breaker liable under either rule it is not necessary that he should actually have asked himself what loss is liable to result from a breach. As has often been pointed out, parties at the time of contracting contemplate not the breach of contract, but its performance. It suffices that, if he had considered the question, he would as a reasonable man had concluded that the loss in question was liable to result...
[6] Nor, finally, to make a particular loss recoverable, need it be proved that upon a given state of knowledge the defendant could, as a reasonable man, foresee that a breach must OMP (COMM) 1/20 dt 31.05.2023 Page 10 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
necessarily result in that loss. It is enough if he could foresee it was likely so to result. It is indeed enough, to borrow from the language of Lord du Parcq in the same case, at page 158, if the loss (or some factor without which it would not have occurred) is a "serious possibility" or a "real danger". For short, we have used the word "liable" to result. Possibly the colloquialism "on the cards" indicates the shade of meaning with some approach to accuracy."
86 Hon'ble Supreme Court in AIR 1951 SC 144 in the matter between Pannalal Jankidas v Mohanlal and Another held as under:
"17. Bearing in mind this state of law it appears clear that in the present case it was the duty of the appellant to insure the goods, as they had agreed to do so. Once the misconduct is admitted or proved, the fact that the Ordinance did not exist and could not have been in the contemplation of the parties is irrelevant for deciding the question of liability. The liability was incurred by reason of breach of their duty and the appellants made themselves liable to pay damages. The measure of damages was the loss being suffered by the respondents son account of goods not being insured. The compensation under the Ordinance is payable on proof of the existence of a fire insurance policy irrespective of the terms of policy. The non- recovery of half the amount of the respondents' claim from the Government under the Ordinance because of the absence of a fire insurance policy, thus directly arises from the neglect of the appellants to insure the goods, as they had been instructed to do or agreed to do and which in fact they represented that they had done. In our opinion, these are not indirect or remote damages."
87 In Messrs. Trojan & Company v RM N. N. Nagappa Chettiar AIR 1953 SC 235, which is a case of dispute between a constituent and a firm of stockbrokers, Hon'ble Supreme Court held as under:
"Plaintiff went into the witness box and stated that had he known what the defendants knew, he would not have purchased the shares. The information was withheld from him that these shares were likely to go down................. In our judgment, Rs 46 per share was the real price of these shares when they were put in the plaintiff's pocket and he got Rs 46 for each share in lieu of what he paid for either Rs 77 or at Rs 77/4. He is entitled to commission also which he would pay on sale of these shares.OMP (COMM) 1/20 dt 31.05.2023 Page 11 of 26
Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
The difference between these two rates is the damage that he suffered and he is entitled to it."
88 Learned Counsel for the Respondent has referred to following judgments in which the courts held that no compensation is admissible due to remote and indirect loss or damage sustained by reason of breach and which the parties may reasonably not have contemplated:
i. Judgment of Andhra Pradesh High Court in the matter of the Andhra Pradesh Mineral vs M/S Pottem Brother 2016 SCC HYD 21 ii. Kerala High Court in State of Kerala vs K. Bhaskaran AIR 1985 Kerala 49 iii. Hadley vs Baxendale (1854 9 Exch 341) In my view, the above judgments do not support the case of the Respondent. The loss due to breach of agreement was foreseen by the parties as they had included a clause in the Trading Agreement regarding liability of the Respondent and Claim by the Client/Claimant. According to Clause 8 of the Business Rules of IEX, the Members shall be required to obtain insurance cover at their own cost, so as to protect themselves from risks and hazards relating to their business operations at the Exchange. Thus, the Respondent should have known the risks and hazards of the business of trading and the liability due to breach of agreement. The loss caused to the Claimant due to negligence of the Respondent is a direct loss as the price of the RECS went up from July, 2018 onwards. If the Respondent had quoted the price of Rs 1500/- in the bid held on 25.04.2018, these RECS had remained unsold and could have been sold by the Claimant from July, 2018 onwards at a higher price. In fact, the Respondent sold 36,530 RECS on behalf of the Claimant at rate varying from Rs 1200 to Rs 1500 per REC during the period from July, 2018 to January, 2019. At no time, the Claimant quoted a rate less than Rs 1200 per REC. It is seen that the Claimant was quoting for rates from Rs 1200 to 1500 per REC in slabs. I therefore, hold that the Respondent is obligated to compensate for causing pecuniary loss to the claimant due to their negligence in wrongly submitting the price bid on behalf of the Claimant.
89 Learned Counsel for the Respondent has argued that despite alleging negligence in services of the Respondent and breach of the agreement, the Claimant has continued to take trading OMP (COMM) 1/20 dt 31.05.2023 Page 12 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
services from the Respondent till date.
90 I feel that that non-termination of the agreement and the continuation of trading services of the Respondent by the Claimant cannot be a reason for denial of compensation to the Claimant for the damages caused to them by beach of agreement by the Respondent. The agreement does not provide that the agreement is required to be terminated for raising any claim by the Claimant. The Respondent has not quoted any provision of law in this regard.
91 Let me now decide the quantum of compensation to be paid by the Respondent to the Claimant.
92 I find that the Claimant had been quoting the rates varying from Rs 1200 to Rs 1500 per REC in slabs from June, 2018 to January, 2019 and the clearing price received by the Claimant was in the range of Rs 1200 to Rs 1501 per REC. The weighted average price received by the Claimant was Rs 1296 per REC during the period July, 2018 to January, 2019.
93 In my view, the compensation payable to the Claimant should be calculated on the difference in price which the Claimant could have received for 28526 RECS if they were sold during the period from July, 2018 onwards and the price of Rs 1001 per REC received in the bidding on 25.04.2018. 94 At selling price of Rs 1296/- per REC, i.e., the weighted average price received by the Claimant for sale of RECS through the Respondent from July, 2018 to January, 2019, the compensation for 28526 RECS would work out to be Rs 84.1 lacs. However, deduction is required to be made for the interest on the amount that the Claimant received due to sale of the RECS on 25.04.2018 @ Rs 1001/- per REC as the Claimant would not have received the amount in April,2018 and would have received the sale proceeds between July, 2018 to January, 2019. However, it is not possible to calculate the amount of interest as interest calculation would require assumption of sale of the RECS in different months. At a price of Rs 1200/- per REC, the minimum price received by the Claimant during July, 2018 to January, 2019 the compensation would work out to be Rs 56.7 lacs. This is the minimum loss that the Claimant has incurred. I also find that this is the minimum price at which the Claimant has bid for its REC after April, 2018. In order to avoid any controversy of calculating the interest on the basis of some assumptions, it will be fair if the compensation is decided OMP (COMM) 1/20 dt 31.05.2023 Page 13 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
on the basis of difference between the sale price of Rs 1200 per REC received by the Claimant during July, 2018 and Rs 1001/- per REC.
95 In view of above, I decide a compensation of Rs 56 lacs in favour of the Claimant which is required to be paid by the Respondent within one month of the date of this award.
ISSUE e) 96 The Claimant has claimed interest @ 12% on the claim amount from the date of default.
97 I do not find any reason to grant interest from the date of default as the compensation amount has only been decided by this award. However, if the compensation amount is not paid by the Respondent within one month of the date of this award, the Respondent will be liable to pay simple interest of 9% per annum for any delay in payment beyond one month.
E. RELIEFS/CONCLUSION 98 After examination of the CERC Power Market Regulations, Bye-Laws and Business Rules of IEX and the agreements between the parties, I have concluded that the relationship between the Claimant and the Respondent is Client- Agent relationship.
99 The Regulations of CERC, Bye-Laws and Business Rules of IEX and the agreements between the parties do not provide for any timeline for communication of bid by the Client to the Member of Power Exchange. On the other hand, the Business Rules of IEX provide for modification or cancellation of bid on the instruction of the Client even after order has entered the system but not traded. The Business Rules permit the Member to modify or cancel the bid during the bidding session. 100 The Respondent acted partially on the revised instructions of the Claimant communicated on 25.04.2018. The Respondent revised the quantity of RECS from 1280 to 28526 but failed to revise the price from Rs 1000/- to Rs 1500/- per REC. In view of specific provisions of the Business Rules of IEX regarding revision of bids even during bidding session, admission of the Respondent of following the practice of entertaining the revised bids on case to case basis and their action of partly OMP (COMM) 1/20 dt 31.05.2023 Page 14 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
implementing the revised bid of the Claimant, the argument of the Respondent that it was not bound to consider the revised bid of the claimant does not hold water.
101 The Respondent has acted in a negligent manner in submitting the bid on behalf of the Claimant and violated the terms and conditions of the Trading Agreement according to which the Respondent had to trade REC based on the instructions of the Claimant.
102 On analysis of market data for RECS from May,2018 to March, 2019 and data for sale of RECS by the Respondent on behalf of the Claimant from July, 2018 to January, 2019, I have come to the conclusion that if the Respondent had correctly bid the price in the trading session on 25.04.2019 as per the revised bid, the 28526 RECS of the Claimant would have not been sold and these RECS could have been sold like other RECS of the Claimant at higher price from July, 2018 onwards. Thus, the Respondent by not acting based on the instructions of the Claimant has caused financial loss to the Claimant. 103 The loss due to breach of agreement and the liability thereof were foreseen by the parties as evident from the clause on liability of the Respondent and claim by the Client/Claimant in the Trading Agreement. The Business Rules of IEX also require the Members to obtain insurance at their own cost, so as to protect themselves from the risks and hazards relating to their operations at Exchange. The Respondent should have known the risks and hazards of the business of trading and liability due to breach of agreement. The loss caused to the Claimant due to negligence of the Respondent is a direct loss to the Claimant and it is neither hypothetical nor imaginary. 104 I have decided that the compensation payable by the Respondent as Rs 56 lacs to be paid to the Claimant within one month of the award.
105 I do not find any reason to grant interest as sought by the Claimant as the liability has been determined only by this award. However, any delay in payment of the compensation by the Respondent beyond one month from the date of the award will attract a simple interest of 9% per annum.
106 Award pronounced in open court on 14th October,2019 at New Delhi. The parties to bear their respective costs".
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12. Admittedly, there is trading agreement dated 18.12.2013 with respect to trading of REC between the parties. The petitioner is also required to provide trading support services. There is another agreement i.e. IEX platform agreement also executed between the parties. RECs are to be traded on this platform. Admittedly the claimant sent its revised bid for sale for RECs at 12:12 p.m. on 25.04.2018, instructing the petitioner to sell 5 RECs from one project and 28521 RECs from another project at a price of Rs. 1500/- per REC. The trading time was 1:00 p.m to 3:00 p.m, around 4:30 p.m., claimant received email from petitioner on 24.04.2018 that due to lot of confusion they were not able to change the price of RECs.
13. The petitioners are obliged to consider the revised price. It is not the case of the petitioner that they have not received the revised price, however, took the plea of confusion of not changing the price of RECs though there is no confusion over changing the number of RECs sold. This categorically suggests that the negligence on the part of petitioner.
14. The Ld. Arbitrator vide impugned award considered the relevant regulations by-laws as well as the agreement between the parties. There is no denial of the relevant facts but only reason pleaded is confusion of price which cannot be considered, particularly when there is no confusion over the units of the RECs traded.
15. The second contention is that the limitation of liability in terms of Clause 6.4 of the agreement which is reproduced as under :
"6.4 Limitation of Liability OMP (COMM) 1/20 dt 31.05.2023 Page 16 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
Save as otherwise determined by any court of law, arbitration or other legal provisions, RET's total liability to Client due to any reason shall not exceed the amount received in fees for services provided.
Client shall bring any claim relating to the Services or otherwise under this Agreement within 12 months of completion of Services."
16. There is another clause 6.6 of the agreement which provides for applicable law and dispute resolution, therefore the parties are also aware of the consequences of breach of agreement. Clause 6.4 in present facts of circumstances, do not restrict of the liability only up to the amount received in fees for services provided. The petitioner is also obliged to pay the compensation. As per the rules and regulations and the agreement the petitioner is not mere agent, but, a broker/service provider for consideration, therefore, in present facts and circumstances, the clause 6.4 cannot interpreted in a manner that the petitioner is only liable for the fees paid. He has to compensated in terms of the loss incurred. The loss in the present case is direct and not remote which is apparent from the future transactions.
17. The claimant has claimed the loss at the rate of Rs. 499/- per REC, however, the Ld. Arbitrator after reasonable exercise found Rs. 199/- per REC. There is no apparent perversity or patent illegality in calculation of the said rate per REC. The contention that the Ld. Arbitrator before calculation must have apprised the petitioner about the manner of calculation is devoid of any merit because the stand taken by the OMP (COMM) 1/20 dt 31.05.2023 Page 17 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd. petitioner is that they have liability maximum to the extent of the fees for the services provided by them.
18. The Hon'ble Apex court in case title 'Delhi Airport Metro Express Pvt. Ltd. vs. Delhi Metro Rail Corporation Ltd. Civil Appeal No. 5627/21 dated 09.09.2021 MANU/SC/0623/2021' have delineated the contours of the courts power to review arbitral awards, the relevant paras are reproduced as under:-
"20. The 1996 Act was enacted to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also to define the law relating to conciliation and for matters connected therewith, by taking into account the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration and the UNCITRAL Conciliation Rules. One of the principal objectives of the 1996 Act is to minimize the supervisory role of courts in the arbitral process. With respect to Part I of the 1996 Act, Section 5 imposes a bar on intervention by a judicial authority except where provided for, notwithstanding anything contained in any other law for the time being in force. An application for setting aside an arbitral award can only be made in accordance with provisions of Section 34 of the 1996 Act. Relevant provisions of Section 34 (as they were prior to the Arbitration and Conciliation (Amendment) Act, 2015) read as under:-
"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 sub-section (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 OMP (COMM) 1/20 dt 31.05.2023 Page 18 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
(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 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 subject-matter 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 sub-clause (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. ..."
21. An amendment was made to Section 34 of the 1996 Act by the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter, 'the 2015 Amendment Act '). A perusal of the statement of objects and reasons of the 2015 Amendment Act would disclose that the amendment to the 1996 Act became necessary in view of the interpretation of the provisions of the 1996 Act by courts in certain cases which had resulted in delay of disposal of arbitration proceedings and increase in interference by courts in arbitration matters, which had the tendency to defeat the object of the 1996 Act. Initially, the matter was referred to the Law Commission of India to review the shortcomings in the 1996 Act in detail. The Law Commission of India submitted its 176th Report, recommending various amendments to the 1996 Act. However, the Justice Saraf Committee on Arbitration constituted by the Government, was of the view that the proposed amendments gave room for substantial intervention by the court and were also contentious. Thereafter, on reference, the Law Commission undertook a comprehensive study of the amendments proposed by the Government, keeping in mind the views of the Justice Saraf Committee and other stakeholders. The 246th Report of the Law Commission was submitted on 05.08.2014. Acting on the recommendations made by the Law Commission in its 246th Report, amendments by way of the 2015 Amendment Act were OMP (COMM) 1/20 dt 31.05.2023 Page 19 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
made to several provisions of the 1996 Act, including Section 34. The amended Section 34 reads as under: -
"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 sub-section (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 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 subject-matter 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 1. --For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,--
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice. Explanation 2. --For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
OMP (COMM) 1/20 dt 31.05.2023 Page 20 of 26Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
(2-A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.
..."
22. A cumulative reading of the UNCITRAL Model Law and Rules, the legislative intent with which the 1996 Act is made, Section 5 and Section 34 of the 1996 Act would make it clear that judicial interference with the arbitral awards is limited to the grounds in Section 34. While deciding applications filed under Section 34 of the Act, courts are mandated to strictly act in accordance with and within the confines of Section 34, refraining from appreciation or re- appreciation of matters of fact as well as law. (See: Uttarakhand Purv Sainik Kalyan Nigam Limited. v. Northern Coal Field Limited.2, Bhaven Construction Through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Another3 and Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran4).
. For a better understanding of the role ascribed to courts in reviewing arbitral awards while considering applications filed under Section 34 of the 1996 Act, it would be relevant to refer to a judgment of this Court in Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI)5 wherein R.F. Nariman, J. has in clear terms delineated the limited area for judicial interference, taking into account the amendments brought about by the 2015 Amendment Act. The relevant passages of the judgment in Ssangyong (supra) are noted as under: -
"34. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law" as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law would be relegated to "Renusagar"
understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] ,as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering with an award on the OMP (COMM) 1/20 dt 31.05.2023 Page 21 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2) (a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204].
35. It is important to notice that the ground for interference insofar as it concerns "interest of India" has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204], or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] . Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] ,as understood in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and paras 28 and 29 in particular, is now done away with.
37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be OMP (COMM) 1/20 dt 31.05.2023 Page 22 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
permitted under the ground of patent illegality appearing on the face of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse. "
24. This Court has in several other judgments interpreted Section 34 of the 1996 Act to stress on the restraint to be shown by courts while examining the validity of the arbitral awards. The limited grounds available to courts for annulment of arbitral awards are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the courts. There is a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and thereafter, dubbing the award to be vitiated by OMP (COMM) 1/20 dt 31.05.2023 Page 23 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
either perversity or patent illegality, apart from the other grounds available for annulment of the award. This approach would lead to corrosion of the object of the 1996 Act and the endeavours made to preserve this object, which is minimal judicial interference with arbitral awards. That apart, several judicial pronouncements of this Court would become a dead letter if arbitral awards are set aside by categorising them as perverse or patently illegal without appreciating the contours of the said expressions.
25. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression 'patent illegality'. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression 'patent illegality'. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2- A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression 'patent illegality'.
26. Section 34 (2) (b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject-matter of the award or if the award is in conflict with public policy of India, the award is liable to be set aside. Explanation (1), amended by the 2015 Amendment Act, clarified the expression 'public policy of India' and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice. In Ssangyong (supra), this Court held that the meaning of the expression 'fundamental policy of Indian law' would be in OMP (COMM) 1/20 dt 31.05.2023 Page 24 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.
accordance with the understanding of this Court in Renusagar Power Co. Ltd. v. General Electric Co.6 In Renusagar (supra), this Court observed that violation of the Foreign Exchange Regulation Act, 1973, a statute enacted for the 'national economic interest', and disregarding the superior courts in India would be antithetical to the fundamental policy of Indian law. Contravention of a statute not linked to public policy or public interest cannot be a ground to set at naught an arbitral award as being discordant with the fundamental policy of Indian law and neither can it be brought within the confines of 'patent illegality' as discussed above. In other words, contravention of a statute only if it is linked to public policy or public interest is cause for setting aside the award as being at odds with the fundamental policy of Indian law. If an arbitral award shocks the conscience of the court, it can be set aside as being in conflict with the most basic notions of justice. The ground of morality in this context has been interpreted by this Court to encompass awards involving elements of sexual morality, such as prostitution, or awards seeking to validate agreements which are not illegal but would not be enforced given the prevailing mores of the day.)
19. The Ld. Arbitrator has passed the award on a detailed scrutiny of facts, appreciating the evidence and in the context of the contemporary legal situation, which is not obnoxious to the settled position of law or the principles of interpretation/appreciation of evidence.
20. A judicial appreciation of the impugned award goes to show that the Ld. Sole Arbitrator has properly appreciated the facts of the case; has done a due analysis of the evidence led by the parties and has rendered his findings after due consideration, application of mind and on the touchstone of the law.
21. The Ld. Sole Arbitrator has drawn inferences and conclusions after the factual appreciation in the light of the legal principles. The views of the Ld. Sole Arbitrator can not be found fault with only for the reason that some other views can emerge by appreciating the same set of facts OMP (COMM) 1/20 dt 31.05.2023 Page 25 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd. and evidence, until and unless it is shown that such a view is totally obnoxious and unsupported by the sound legal principles.
22. This Court cannot substitute its own views or the views of the parties with the view taken by the Ld. Arbitral Tribunal, if the view taken by the Ld. Arbitrator is not in conflict with the settled legal position. There is nothing to suggest that the findings and conclusions rendered by the Ld. Arbitrator are per-se perverse, illegal or non- sustainable.
23. The challenge to the impugned award is purely on merits which also impermissible and there is no ground to state that the award is against the public policy of Indian Law.
24. Accordingly, the present petition under Section 34 (2) (b) (ii) of the Arbitration and Conciliation Act as pressed into service by the petitioner is therefore not sustainable within the scope and ambit of the provision, therefore, liable to be dismissed and accordingly dismissed and disposed of.
File be consigned to record room after necessary compliance. Announce in the open court on 31st May, 2023 (Ajay Kumar Jain) District Judge(COMM- 03), SE/Saket Courts/Delhi OMP (COMM) 1/20 dt 31.05.2023 Page 26 of 26 Reconnect Energy Trading Vs. M/s SDM Shriram Industries Ltd.