29 The scope of challenge to an arbitral award under Section 34 and the scope of appeal under Section 37 of the Act………………………………………………………………………………………… 8493 of 2021; and another by the State of Goa, being the appeal arising out of SLP ( Civil ) Shorn of unnecessary details, the relevant factual aspects could be usefully summarised as follows: 4.1. By the First Supplementary Power Purchase Agreement dated 10.09.1997, it was mutually agreed to convert the generating station from Open Cycle Generating Station into a Combined Cycle Generating Station with a capacity of 48 MW. Furthermore, the claimant was authorized to sell power in excess of 39.8 MW to consumers due to the combined cycle operation. However, in view of a provision in the PPA for use of alternate fuel, by its communication dated 21.03.2013, the claimant gave its proposal to the Government of Goa to supply power by using Regassified Liquefied Natural Gas, which was being brought up to Goa by GAIL by its pipeline.
The revised fixed rate shall be applicable from 1 April 2013.” On 30.04.2013, the claimant, however, sought a clarification from the Government regarding the formula-based tariff payable for the supply of electricity, inter alia, in the following words: – “1. For its relevance, this communication dated 23.05.2013 is reproduced, in extenso, as under : – “ GOVERNMENT OF GOA ELECTRICTY DEPARTMENT OFFICE OF THE CHIEF ELECTRICAL ENGINEER No. 2013 addressed to this office and a copy enclosed to the Hon ’ ble Chief Minister, State of Goa and others. It has also been the case of the claimant that in fact, the decision to purchase power at fluctuating price was approved by a decision taken by the Cabinet Committee headed by the Chief Minister of the State of Goa. After long-drawn proceedings of arbitration with filing of claim, reply and counter claim, rejoinder, sur-rejoinder, amendment of counter claim, filing of various applications and written submissions, the Arbitral Tribunal ultimately passed the award dated 16.02.2018 whereby it directed the State to pay to the claimant a sum of Rs. However, to take into comprehension as to what was presented to the Arbitral Tribunal by way of dispute and as to what material points called for determination, it may 8 be noticed that the parties jointly formulated the issues on which the Arbitral Tribunal was required to give its ruling; and the same were duly taken note of by the Arbitral Tribunal in the following words:- “ 34.
c) Contention of the respondent that the claimant had agreed to supply power based on a fixed rate of Fuel price and a fixed rate of exchange in terms of US Dollar to INR for supply of power using RLNG as fuel from June, 2013 onwards; d) Claim of the Claimant that it is entitled to Fuel Facilitation Charges for supply of power by using RLNG from June 2013, and e) Contention of the respondent that back-up power supplied by it from May, 2014 till 13th August, 2014 was 1.25 times of Rs. Accordingly, the Claimant will be entitled to a sum of Rs.119.32 Crores by way of principal amount and a sum of Rs 158.98 Crores by way of interest for the period up to 31.10.2017 totaling Rs. If the full payment of the amount awarded together with interest is made within the period of two months from the date of the award, the Respondent shall not be liable to pay interest for any period subsequent to the date of the award, otherwise, it shall be liable to pay interest at the rate of 15% per annum from the date of the award till the date of payment/realisation in full.
Provided that, in case the Respondent pays to the Claimant the entire amount together with interest awarded within two months of the date of the Award, it shall not be liable to pay interest for the period subsequent to the date of the Award. However, we may extract the points for determination formulated by the Commercial Court and their answers, as indicated in the impugned judgment and order dated 12.09.2019, as follows : – “ 27. Arbitrator that 3.78 per unit was a fixed amount for supply of backup power by GOG to the claimant is illegal and contrary to the terms of PPA? Again, we shall refer to the relevant findings of the High Court at the appropriate stage but, in order to indicate the points taken up for determination by the High Court with reference to the rival contentions, the following extraction shall be apposite: – “ 39.
(E) Whether the Appellant has made out a case that the impugned Award on the aspect of variable charges on 4 MW power which was permitted to be traded for Rs.
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Be that as it may, thereafter, the High Court dealt with the questions raised by the State as regards the alleged breach of principles of natural justice in point (B) and rejected all such contentions with reference to the record of proceedings as also the pleadings and evidence of the parties. Of course, on point (G), in relation to the award of interest for the pre-reference period and the period during which proceedings were pending before Arbitrator, the High Court found no reason to interfere but then, with reference to the decision of this Court in Vedanta Ltd. Since we have rejected the challenge to the summary of computations in Schedule 2 of the impugned Award, even after holding the issues of downrating, 4 MW power, fuel formula, facilitation fuel charges, and netting out in favour of the Appellant, the Appellant is still due and payable principal amount of Rs.
151.97 crores, the Appellant will have to pay interest at the approved rate for the period from 31.10.2017 till the date of the Award i.e. Thereafter, however, the Appellant will have to pay interest at the rate of 10% per annum from the date of Award till the payment of the amount to the Respondent. Further, if despite our order partly allowing this appeal, the Appellant is still due and payable to the Respondent the amounts over and above those which the Respondent has already withdrawn against bank guarantees, then, obviously, the Respondent need not keep the bank guarantees alive for more than 15 days from today. Tripathi, learned senior counsel appearing on behalf of the claimant, has made a variety of submissions in challenge to the part of the impugned judgment and order dated 08.03.2021 whereby, substantial part of the award in question has been upturned by the High Court. With respect to the submission that the application of the State for appointment of expert under Section 26 of the Arbitration Act had not been decided by the Arbitral Tribunal, learned senior counsel has submitted that the High Court had noted in paragraphs 51 and 52 of the impugned judgment that the prayer seeking appointment of expert was deleted by the State itself. Even otherwise, no issues were raised contemporaneously by the Government of Goa, and the supposed non-compliance of clauses 12.1.4. Learned counsel has countered this by relying on 18 the observations of the Arbitral Tribunal that the issue of downrating was irrelevant given the subsequent amendment to the PPA, restricting the assured supply to 19.8 MW as the New Rated Capacity, without referring to downrating of such capacity.
Learned counsel would submit that the High Court has erroneously proceeded to draw an adverse inference against the claimant owing to its failure to produce the OEM’s recommendation and has erroneously entered into the process of interpretation of the Minutes of Meeting dated 19 05.04.2007. It has been contented that the Arbitral Tribunal, after appreciating the evidence including the said letters, concluded that Government of Goa was exempted from payment of only fixed cost with regard to this 4 MW power permitted to be supplied to the other consumers; and the said letter dated 19.01.2009, in no way, affected the committed power supply by the claimant to the Government.
Learned senior counsel has submitted that the Arbitral Tribunal rightly came to the finding that the rate per unit was a fixed amount since determination of average cost of energy had become irrelevant, by relying on office memorandums dated 13.08.2014 and 18.09.2014. Venkataramani, the learned Attorney General for India, appearing on behalf of the State has countered the submissions made on behalf of the claimant and has argued that the High Court has rightly interfered with the award in question that suffered from patent illegalities. Learned Attorney General would submit that the High Court rightly interfered with the order under Section 34 of the Act of 1996 considering the fact that the Commercial Court did not adjudicate upon the arbitral award and rather framed separate issues like a regular Appellate Court. Hence, it has been contended that the award would be liable to be set aside on the ground of patent illegality under Section 34(2A) of the Act of 1996 because an Arbitral Tribunal cannot rewrite the contract between parties and the award was made in ignorance of vital evidence. As regards procedural aspects, it has been argued on behalf of the State that there had been clear violation of the principles of natural justice since the application seeking appointment of an expert in terms of Section 26 of the Act was not disposed by the Arbitral Tribunal, although an order was passed by the Tribunal that it would be decided at an appropriate time. It has further been submitted that the request of the State to file additional written submissions was not granted by the Arbitral Tribunal even after additional written submissions were placed on record by the claimant. Moreover, it would be wrong to assert that if fuel facilitation charges had not been given to the claimant by the Arbitral Tribunal, the requirement of providing FSCs would be waived off. It has been submitted that this failure to produce the OEM recommendations would necessitate an adverse inference being drawn 25 against the claimant and the claimant could not have subsequently relied on the certificate dated 08.11.2005 to argue that no degradation had taken place, vitiating the applicability of downrating. 3.94 crore towards variable charges on 4 MW power is concerned, learned Attorney General has submitted that variable charges were only to be paid in respect of power actually purchased, whereas fixed charges were payable regardless of actual purchase since there was no connection with infrastructure costs. This has resulted in a dual profit to the claimant, for having been held entitled to recover variable costs for 4 MW electricity from the State despite not supplying electricity to it; and also being compensated for both fixed charges and variable charges for 4 MW electricity by such third parties. It has been argued that clause 15 of the Second Supplementary PPA provided that all the backup energy supplied by the Government during an unscheduled or forced outage would be netted-out against energy supplied by the power station to the Government in the subsequent billing period in the ratio of one unit of backup power equal to one and quarter of unit of energy supplied.
3.78 per unit was the base rate for calculation of netting-out and could not be construed as waiver of the said provisions of the contract. It has also been suggested that the contractual provisions for interest were in terrorem and liable to be discarded having regard to Section 74 of the Contract Act, 1872. Since the present appeals relate to an arbitral award, which was carried in challenge under Section 34 and in appeal under Section 37 of the Act of 1996; and looking to the variety of submissions made, we may usefully take note of the relevant statutory provisions contained in Sections 26, 28, 34 and 37 of the Act of 1996 as follows: “ 26. (3) Unless otherwise agreed by the parties, the expert shall, on the request of a party, make available to that party for examination all documents, goods or other property in the possession of the expert with which he was provided in order to prepare his report. -(1) Where the place of arbitration is situate in India, — (a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India; (b) in international commercial arbitration, — (i) the arbitral tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute; 30 (ii) any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules; (iii) failing any designation of the law under clause (a) by the parties, the arbitral tribunal shall apply the rules of law it considers to be appropriate given all the circumstances surrounding the dispute. (2) An arbitral award may be set aside by the Court only if– (a) the party making the application [establishes on the basis of the record of the arbitral tribunal 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 31 provision of this Part from which the parties cannot
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.] [(2A) 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 reappreciation of evidence.] (4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of 32 arbitral tribunal will eliminate the grounds for setting aside the arbitral award. Appealable orders.- (1)
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[Notwithstanding anything contained in any other law for the time being in force, an appeal] shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:– (a) refusing to refer the parties to arbitration under section 8; (b) granting or refusing to grant any measure under section 9; (c) setting aside or refusing to set aside an arbitral award under section 34.] (2) An Appeal shall also lie to a court from an order of the arbitral tribunal.- (a) accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or (b) granting or refusing to grant an interim measure under section 17. Form and contents of arbitral award.- xxx xxx xxx (7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, 33 for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. Having regard to the contentions urged and the issues raised, it shall also be apposite to take note of the principles enunciated by this Court in some of the relevant decisions cited by the parties on the scope of challenge to an arbitral award under Section 34 and the scope of appeal under Section 37 of the Act of 1996. As per the legal position clarified through decisions of this 34 Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34 ( 2 )( b )( ii ), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts.
Pursuant to the insertion of Explanation 1 to Section 34 ( 2 ), the scope of contravention of Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award, violation of Section 75 or Section 81 of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality. 35
Thus, it is evident that in case an arbitral award has been confirmed by the court under Section 34 and by the court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings.” 2.
Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award. 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.
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. The scope of interference would be limited to grounds provided under Section 34 of the Arbitration Act.
However, 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. It is settled law that where : ( i ) a finding is based on no evidence, or ( ii ) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or ( iii ) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse. Therein, this Court not only re-affirmed the principles aforesaid but also highlighted an area of serious concern while pointing out “a disturbing tendency” of the Courts in setting aside arbitral award s after dissecting and re-assessing factual aspects. , ( 2020 ) 2 SCC 455 : ( 2020 ) 1 SCC (Sai ) 570 ], Bhaven Construction v. Dewan Chand Ram Saran [ Rashtriya Ispat Nigam Ltd. 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. 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. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression “ patent illegality ”.
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. , 2019 SCC OnLine Del 6562 ] amounts to appreciation or reappreciation of the facts which is not permissible under Section 34 of the 1996 Act. So far as the impugned judgment and order passed by the High Court quashing and setting aside the award and the order passed by the Additional District Judge under Section 34 of the Arbitration Act are concerned, it is required to be noted that in an appeal under Section 37 of the Arbitration Act, the High Court has entered into the merits of the claim, which is not permissible in exercise of powers under Section 37 of the Arbitration Act. The High Court has entered into the merits of the claim and has decided the appeal under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial Court. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an appellate court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed.” Keeping in view the aforementioned principles enunciated by this Court with regard to the limited scope of interference in an arbitral award by a Court in the exercise of its jurisdiction under Section 34 of the Act, which is all the more circumscribed in an appeal under Section 37, we may examine the rival submissions of the parties in relation to the matters dealt with by the High Court.
It appears that in the counter claim filed by Government of Goa 42 before the Arbitral Tribunal, initially it was prayed that all transactions and invoices raised by the claimant need to be re – examined through a technical cum financial expert so as to ascertain the correctness of the bills in terms of Section 26 of the Act but, t hereafter, the Government itself amended its counter claim, as permitted under Section 23 of the Act by the Arbitral Tribunal, and dropped this prayer. In this regard, we may usefully reproduce paragraph 31 of the award where the Arbitral Tribunal specifically noticed the submissions made on behalf of the Government of Goa about exercise having been undertaken to workout the details pertaining to the counter claim and permitted the Government to specify the amount with reference to different heads and with necessary particulars. The Tribunal permitted the Respondent to convey to the Claimant in writing the amount which the Respondent claimed by way of counter claim in the instant proceedings under different heads and with necessary particulars. Government of Goa ’ s contention that opportunity was not granted by the Arbitral Tribunal to file additional written submission has also been dealt with by the High Court with the finding that sufficient opportunity was 44 given by the Arbitral Tribunal since there were at least two meetings / hearings before the learned Arbitrator where the Government of Goa did neither file nor seek leave to file written submissions in response to the claimant’s written clarifications / submissions. In regard to the aforesaid procedural aspect s of the matter, the High Court has cautiously taken note of the record of proceedings and has proceeded only within the confines of its jurisdiction to reject these contentions. The question, however, is as to whether the High Court remained within those confines while dealing with the other points of challenge pertaining to the items of claim and consideration of the Arbitral Tribunal in that regard. It is the case of the claimant that the ground on which the High Court has set 45 aside the award was not at all an issue before the Arbitral Tribunal; that in any case, the State has referred to such clauses of the PPA which were not applicable to supply of electricity by using RLNG as alternate fuel; and that these clauses were applicable only for supply of electricity using ‘ Naphtha ’ as fuel. After taking note of relevant submissions and after having examined the entire documentary evidence, the Arbitral Tribunal returned a clear finding on facts in the following terms: – “ 41. 8.58 per unit, which was described as the “ revised fixed rate”, the Claimant clarified the position immediately by stating in its letter of 30th of April 2013 to the Respondent that the price mentioned in the proposal dated 21st of March 2013, was not for a fixed cost of power supplied, and that the same shall vary depending upon the fuel price in the market and the exchange rate. On the very next day, the Respondent by its letter dated 23rd of May 2013 confirmed that the Government had decided to continue to purchase power as per the formula proposed by the Claimant in their letter dated 21st of March 2013 considering the prevailing rates of fuel and dollar up to the expiry of the existing PPA. Relying on the decision of the Hon’ble Supreme Court (AIR 1963 S.C 395) in Bachhittar Si ngh Vs State of Punjab, it was contended that unless the Cabinet decision is followed by a formal order drawn up by the State Government, it does not have any binding effect. Pursuant to the said decision, a letter was written by the Respondent to the Claimant accepting the proposal based on variable charge in accordance with the prevailing 47 cost of fuel and dollar. It might appear that in the latter part of the pleadings, the Government of Goa referred to the aforesaid clauses 12.1.4 to 12.1.7 of PPA but, fact of the matter remains that they were not as such considered by the parties to be forming material propositions of law or facts so as to form the part of the issue before the Arbitral Tribunal. Significantly, in the present case, the parties themselves succinctly formulated the issues on which the Arbitral Tribunal was required to give its ruling and therein, as regards this matter of variable charges, the question posed was with reference to assertion of the Government of Goa that the claimant had agreed to supply power based on fixed rate of fuel price and a fixed rate of exchange in terms of price of US dollar to INR for supply of power using RLNG as fuel from June, 2013 onwards (vide point C in paragraph 34 of the award-reproduced hereinabove). For ready reference, we may reproduce the definitions of “Fuel” as also “Fuel Supply Contract” in the PPA which read as under: – “ ‘Fuel’ means Naphtha or any Alternate Fuel; *** *** *** ‘Fuel Supply Contract’ shall mean any contract entered into between RSPCL and any Fuel Supplier for the supply of Naphtha pursuant to clause 12; ” 16.5.1. As noticed, the core of variance of the parties had only been as to whether the claimant was to supply energy on a fixed rate of fuel and fixed rate of foreign currency after the parties had agreed to the use of alternate fuel. The Arbitral Tribunal has noticed that the decision of the cabinet was produced before it by Government of Goa itself. This has been a particular view taken by the Arbitral Tribunal of the evidence on record.
According to us, the issue about the applicability and the non- compliance of contractual clauses 12.1.4 to 12.1.7 was one of the most relevant and vital issues which arose before the learned Arbitrator. The Award to this extent will have to be held as vitiated by patent illegality because Award ignores vital evidence on the issue of applicability and non- compliance with the contractual provisions in clauses 12.1.4 to 12.1.7.” 52 17.2.
The High Court has also proceeded to observe and reiterate that interference was being made not because of the Court disagreeing with any interpretation of the contractual clauses by the Arbitrator but because the Arbitrator failed to look into the relevant contractual provisions.
24.66 crores to the Respondent towards the variable charges.” As noticed, arbitral award is not an ordinary adjudicatory order so as to be lightly interfered with by the Courts under Sections 34 or 37 of the Act of 1996 as if dealing with an appeal or revision against a decision of any subordinate Court. As said by this Court in Associate Builders (supra), if an Arbitrator construes the term of contract in a reasonable manner, the award cannot be set aside with reference to the deduction drawn from construction. Therein, the specific ground of challenge by the appellant-State had been that the Arbitrator ignored the binding term of contract governing the parties relating to recovery of “supervision charges”. On a conspectus of the facts of the case, it remains undisputed that though the appellant State did raise an objection before the Arbitral Tribunal on the claim of the respondent Company seeking deduction of supervision charges, for which it relied on Clause 6( b ) of the agreement and the Circular dated 27-7-1987 to assert that recovery of supervision charges along with expenses was a part and parcel of the contract executed with the respondent Company, the said objection was turned down by the learned sole arbitrator by giving a complete go-by to the terms and conditions of the agreement governing the parties and observing that there is no basis to admit any such “indirect expenses”. I t was only after the appellant State had terminated the second contract on 21-12- 1998, that the respondent Company raised a dispute and for the 55 first time, claimed refund of the excess amount purportedly paid by it to the appellant State towards supervision charges incurred for supply of Sal seeds. In our opinion, this is the patent illegality that is manifest on the face of the arbitral award inasmuch as the express terms and conditions of the agreement governing the parties as also the Circular dated 27-7-1987 issued by the Government of Madhya Pradesh have been completely ignored.” 2. We are, therefore, of the view that failure on the part of the learned sole arbitrator to decide in accordance with the terms of the contract governing the parties, would certainly attract the “patent illegality ground”, as the said oversight amounts to gross contravention of Section 28(3) of the 1996 Act, that enjoins the Arbitral Tribunal to take into account the terms of the contract while making an award. The aforesaid had not been a case of the fundamental alteration of the terms of contract during the currency of contract and for that matter, the parties having definitely exchanged communication and having brought into 56 existence an agreement which, even if construed as supplemental to original one, had been of material difference in regard to the use of particular fuel and then raising of invoices on that basis with reference to fluctuating price of fuel as also the exchange rate of foreign currency (US dollar). Putting it in other words, the High Court, even while reminding itself of the limitation of jurisdiction, has committed the same error by extensively dissecting the evidence while assuming that clauses 12.1.4 to 12.1.7 were decisive of the matter without taking a close look at the material 57 propositions which formed the dispute and which were presented by the parties before the Arbitral Tribunal. Viewed in the light of core dispute presented to the Arbitral Tribunal by the parties, the submissions of the learned Attorney General, that the Arbitral Tribunal has not examined the question as to whether the correspondence in question resulted in change of fundamentals of contract, do not make out a case for interference because novation of the terms of contract as regards fuel had not been a matter of dispute at all.
As regards downrating, the issue before the Arbitral Tribunal was as to whether the plant was required to be downrated till the expiry of PPA as contended by Government of Goa relying on a draft notification issued by Ministry of Power, Government of India. Learned counsel for the Claimant brought to the notice of the Tribunal that it was in paragraph 12 of the sur rejoinder that the Respondent sought documents relating to Original Equipment Manufacturer ’ s ( OEM ) recommendations towards down rating of generating capacity as envisaged in the definition of “ Contracted Capacity ” which was required to ascertain the implementation of the down rating of the generating capacity in accordance with the recommendations of the Original Equipment Manufacturer. After the dispute arose, the Respondent observed that the down rating factor ought to have been applied from the year 2000 onwards, which was the second year of commercial operation, in terms of OEM recommendations. Based upon the draft notification issued by the Ministry for Power, the Respondent has made calculations taking into account the down rating right from the year 2000. The Claimant responded by contending that a draft notification issued by the Ministry for Power has no value unless the same is duly notified in the Gazette. After the Claimant commenced commercial operation of the power station on 14th of August 1999, on completion of one year thereafter, a second supplementary agreement was entered into on 20 September 2000 whereunder the Respondent agreed to consent to sale of electricity in full or in part, to the extent of 2000 KW generated at the power station directly to any consumer in Goa. What is even more significant is the reliance placed upon the certificate issued by the OEM namely BHEL – GE Gas Turbine Services, Private Limited dated November 8, 2005.
It is certified by the OEM that subsequent to the commissioning of the Goa plant of the Claimant recommended inspections of Gas Turbine were carried out and Turbine was found to be generating the Rated Output without any degradation. It is not disputed that, based on the minutes of the said meeting and the agreement arrived there at, the invoices for the period April 2004 to April 2007 were reconciled and the reconsideration was duly approved by the Respondent and the payment was made on the basis thereof by the Respondent to the Claimant. The Arbitral Tribunal thus held that the issue relating to downrating of capacity was settled between the parties and the parties should not be allowed to reagitate the same. The impugned Award has recorded a finding based on the bald statement in the certificate dated 8 November 2005 and there was no degradation of the plant and further, in the absence of degradation of the plant, the concept of downrating will not apply, Again, this is, with respect, patent illegality.
The impugned award to the extent it rejects the Appellant’s contention based on the downrating, will, therefore, have to be set aside on the ground that the same is vitiated by patent illegality on the face of the record. What the Arbitral Tribunal has held in regard to this item had exclusively been its view on the evidence on record and the relevant surrounding facts/factors. However, in a given case, while determining the dispute by way of arbitration, whether the Arbitrator draws such adverse inference or not, is essentially a matter of appreciation 64 of evidence; and if not drawing of adverse inference is also permitted to be raised as a ground of challenge under Section 34, it would open the confines of limited interference in an award; and would carry the propensity of converting the proceedings under Section 34 and under Section 37 into the proceedings of regular appeal/revision against the award and thereby, again violating the principles that re-appreciation of evidence is not envisaged in the proceedings under Section 34 of the Act of 1996.
If it were an appeal against the award, the approach of the Court could have been different but, not so while examining the award within the confines of Section 34 of the Act. Having found the two major issues dealt with by the High Court not standing within the confines of limited jurisdiction under Section 34 of the Act of 1996, we may again observe that the approach of the High Court in relation to the other two comparatively minor issues relating to variable charges on 4MW power and netting-out principles is also suffering from the same error, where the High Court has deeply analysed the evidence on record to hold that the Arbitral Tribunal has not been correct in its propositions or inferences. 8 MW capacity of the power station reserved for Government of Goa by 66 permitting the balance 4 MW to be sold to third parties; and the High Court arrived at a different finding of fact on the evidence on record. We may usefully reproduce the summation of the findings by the High Court as regards variable charges on 4 MW power as follows:- “ 137.
Therefore, the reasoning that because there was no reference to variable charges in the communication dated 19.1.2009, the same was agreed to be paid by the Appellant is quite perverse and constitutes patent illegality on the face of the record. The Arbitral Tribunal considered the documentary evidence before it, as well as the provisions of the contract relating to supply of backup power by Government of Goa to the claimant when the power station was under shutdown for the period May 2014 to August 2014. The Arbitral Tribunal further referred to the communications which also include the decision of the Government of Goa as to the rate at which power during the shut down period was to be supplied to the claimant and on this basis, came to the finding that a fixed rate which was not to be multiplied as per the provisions of the PPA was agreed between the parties. There is nothing either in the noting or in the communication dated 18/9/2014 to even remotely suggest that by determining such base rate, the parties intended to give a complete go-by to the clear and specific contractual provisions for the multiplication of this base rate into 1.25 for purposes of netting out in the eventuality of an unscheduled shut down of the power plant by the Respondent. In regard to the question of interest, the High Court has rightly held that the Arbitral Tribunal was justified in following the contractual provisions and the provisions of Section 31 ( 7 ) of the Act; and has rightly not interfered 69 with the award of interest for the pre – reference period and the period during which the proceedings were pending before the Arbitral Tribunal. However, insofar as post-award period is concerned, the High Court has reduced the rate of interest from 15 % to 10 % by following the decision of this Court in the case of Vedanta Ltd. Having cumulative regard to all the factors referred to above, we feel that in the facts and circumstances of the present case, the award of interest at the rate of 15% per annum is excessive and contrary to the principle of proportionality and reasonableness and the same will have to be scaled down to 10% per annum. , the rate of interest was reduced in respect of the foreign currency component to bring the interest rate in line with the international rate on the ground that the rate of interest prevailing on the rupee debt in India and on international currency abroad were different and the international rates were lower.
In our view, the Arbitral Tribunal was well within its jurisdiction under Section 31 of the Act to award interest at the rate of 15 % p.a. It is noticed that after taking note of the submissions of parties, the Commercial Court precisely framed the points for determination and then, dealt with every point on the anvil of Section 34 of the Act of 1996. We may, for illustration, reproduce paragraph 49 of the order of the Commercial Court where, in relation to the issue of variable charges, after taking note of all the factual aspects and contentions of the parties, the Commercial Court held as under: – “ 49. Reference was made to Judgment in the case of Bachhittar Singh (supra) wherein it is held that unless the cabinet decision is followed by a formal order drawn up by The State Government, it does not have binding effect. This is apart from the fact that such an approach would render several judicial pronouncements of this Court redundant if the arbitral awards are set aside by categorizing them as “ perverse ” or “ patently illegal ” without appreciating the contours of these expressions. In the passing, we cannot help noticing that in the impugned judgment, the High Court though referred to the principles laid down by this Court in Ssangyong Engineering (supra) but then, reproduced an analysis by a learned Single Judge of the High Court and proceeded to decide the matter with reference to the passages so extracted.
Hence, that part of the impugned judgment and order dated 08.03.2021 as passed by the High Court, which modifies the award dated 75 16.02.2018 and the order of the Commercial Court dated 12.09.2019, is set aside and consequently, the award in question is restored in its entirety. No costs.
Case Title: RELIANCE INFRASTRUCTURE LTD. Vs. STATE OF GOA (2023 INSC 514)
Case Number: C.A. No.-003615-003615 / 2023
