[1]. HIGH COURT OF MADHYA PRADESH PRINCIPAL SEAT AT JABALPUR Arbitration Appeal No.3/2008 1. ANSALDO Energia, S.P.A., A Company duly organized and existing under the Laws of Italy with its Principal Office located in via N. Lorenzi, 8, 16152, Geneva, Italy.
2. Asia Power Projects Private Limited, (Formerly known as ANSALDO Services Private Limited), having its Registered Office at No.50/1, Residence Road, Third Floor, Gupta Tower, Bangalor”
025. ..........APPELLANTS Versus 1. Madhya Pradesh State Electricity Board, Through its Secretary, Shakti Bhawan, Nayagaon, Jabalpur (M.P.) 2. M.P. Power General Co. Ltd., Through its Managing Director, Shakti Bhawan, Nayagaon, Jabalpur (M.P.) ..........RESPONDENTS Present: Hon. Shri Justice Krishn Kumar Lahoti, Acting C.J.Hon. Smt. Justice Vimla Jain ___________________________________________________________________ Shri S.U. Kamdar, learned Senior Advocate with Shri Nahoush Shah, Shri Manot Sharma and Shri Alok Hoonka, Advocates for the appellants. Shri R.N. Singh, learned Senior Advocate with Shri A.J.Pawar, Advocate for the respondents. ___________________________________________________________________
JUDGMENT/08/2013 Per Krishn Kumar Lahoti, ACJ.This appeal is directed against an order dated 4th October, 2008 passed by the VII Additional District Judge, Jabalpur in Arbitration Petition No.97/2008 by which the Additional District [2]. Judge has set aside the award dated 23.09.2004 passed by the Arbitral Tribunal under Section 34(2)(a)(iv) and section 34(2)(b) (ii) of the Arbitration and Conciliation Act, 1996.
2. The factual position of the case is as under:- (a) On 24.10.1996, the respondent had issued a tender notice inviting proposal from intending bidders for refurbishment of Thermal Power Plant of 2 x 120 MW (Unit No.3 &
4) of Phase-II at its Amarkantak Thermal Power Station. In continuation to notice inviting tender, the prospective bidders had visited the Power Station, sought clarification and information and various terms of NIT were discussed. (b) The appellant herein had submitted its proposal as per the NIT. On 31.01.1998, the appellant had submitted revised proposal in view of the clarifications to NIT. The appellant had submitted its technical and commercial clarifications in April, 1998. On 11.05.1998 the appellant had forwarded its consolidated revised proposal by incorporating clarifications in respect of the revised proposal in continuation to its earlier offer dated 31.01.1998. Thereafter some terms and conditions of the tender were revised on the basis of clarification received from the bidders. On 27.03.1999 the appellant had submitted its final bid. On 20.04.1999 the respondent had sought certain clarification from the appellant in respect of final proposal and after exchange of various correspondences, a final clarification was submitted by the appellant in April, 1999. On 11.05.1999, the respondent had issued provisional letter of intent to the appellant. In pursuance to the letter of intent, the following agreements were executed between the appellant and respondent:- (i) The Overall Coordination Agreement which was called as Principal Agreement. [3]. (ii) Off-shore Supplies Contract Agreement in respect of supply by appellant of equipment and goods produced outside India and imported into India. (iii) On-shore Supplies Contract Agreement relating to the supply by the appellant of equipment and goods produced within India; and (iv) On-shore Services Contract Agreement relating to the performance by the appellant for construction, completion, testing and commissioning services. (c) On 22.02.2000, appellant had furnished Bank Guarantee of ANZ Grindlays Bank bearing not G/1301/2000/092 for Rs.9,29,20,000/-. It was calculated at 10% of the on-shore supplies contract price being guarantee for claiming advance payment from the respondent. The ANZ Grindlays Bank was subsequently known as Standard Chartered Grindlays Bank. (d) On 23.02.2000 another Bank Guarantee was furnished by the appellant from the ANZ Grindlays Bank bearing not AY/1301/2000/093 for US$ 17,08,100 which was calculated at 10% of the contract price of the off-shore supplies. This bank guarantee was also furnished for claiming advance payment from the respondents. (e) On 24.02.2000 the appellant had furnished a performance bond for Rs.18,48,00,000/- which was also calculated at 10% of the total contract price in pursuance to clause 4.1 of the principal agreement entered into between the appellant and respondent. (f) On 7th and 8th March, 2000, the appellant had received two advance payments equivalent to two Bank Guarantees for Rs.9,29,20,000/- and US$ 17,08,100. These amounts were released by the respondent in favour of the appellant. [4]. (g) On 09.03.2000, the respondent had issued a letter seeking confirmation from appellant to confirm that the date 09.03.2000 shall be treated as zero date and fulfillment of all pre-conditions. (h) On 10.03.2000, the appellant had agreed to the aforesaid proposal of zero date. (i) Thereafter various correspondences had exchanged between the appellant and respondent regarding progress of the work and ultimately on 12.03.2001, respondent had directed to convene a meeting on 19.03.2001 for reviewing the progress and status of refurbishment work. In reply to it, the appellant had also sent a letter to the respondent for consideration of several issues in the said meeting and for re-schedulement of the performance of the work. The correspondence had continued for rescheduling of the work. Ultimately, on 9th and 10th April, 2001, a meeting was held between the appellant and respondent. The appellant had not signed the minutes of meeting. (j) On 07.05.2001, the appellant had sent a letter to the respondent for appropriate action to get extension of last date of shipment specified in the letter of credit for off-shore supplies. On 08.05.2001, the appellant had sent another letter stating that the last date of shipment was already changed from June 8, 2001 to February 21, 2002 and earlier letter dated 7th May, 2001 should be treated as cancelled. This letter was objected by the respondent and a letter was sent to the ANZ Grindlays Bank that without the consent of the respondent, how the last date of shipment was changed to February 21, 2002 while the last date of shipment was June 8, 2001. (k) On 28.05.2001 the Bank had sent a letter to the respondent stating that it was an error on the letter through which letter of credit was notified to be operative. The last date [5]. of shipment had remained to be 8th June, 2001. The letter of the Bank was forwarded to the appellant. (l) On 30.05.2001 the appellant had intimated the respondent that they were not in a position to finalize the design parameters necessary for commencement of the supply and submitted that validity of the letter of credit for imported supply (off-shore supply) should be extended for 12 months and the last date be changed from 8th June, 2001 to 9th January, 2002. (m) On 07.06.2001 the respondent had denied for extension of the date and revocation of earlier letter of last date of shipment. In reply to it, the ANZ Grindlays Bank had sent a letter to the respondent on 13.06.2011 apprising the action required for cancellation of the supply as per exchanged Control Regulation. (n) On 15.06.2001 the respondent had sent a letter to the appellant to furnish a detailed analysis of the causes which had necessitated the revision of the schedule for supply so that permission from RBI to extend the last date of shipment may be sought as per the rules. The aforesaid request of MPEB was rejected by the appellant by letter dated 21.06.2001 and declared that the contract expired unilaterally on the ground of non-fulfillment of contractual obligations by the respondent. On receiving such letter, the respondent had invoked three bank guarantees as per the term of Bank Guarantee to realize contractual securities and also invoked performance bond. (o) The appellant had protested the action and made a request to the respondent for referring the matter for arbitration by invoking arbitration clause under the Principal Agreement. (p) On 29.06.2001 the appellant had filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 registered as Arbitration Case No.11/2001. [6]. (q) On 07.07.2001 an order was passed by the District Judge, Jabalpur that the amount received by the respondent of the Bank Guarantees by the Bank Drafts should not be disbursed at any place or appropriated under any other head and the same shall be kept secured so that the amount can be diverted as per the order of the Court. (r) On 20.08.2001 the respondent had made a request to the appellant not to suspend the performance of the contract agreement and for expeditious completion of the rehabilitation and refurbishment work. (s) On 23.08.2001 the respondent had asked the appellant for discussion to resolve the dispute and differences. (t) On 29.08.2001 the respondent had issued a notice to the appellant to cure the defects within 30 days. The aforesaid letter was replied and the contents were denied by the appellant. (u) On 08.01.2002, the respondent had terminated the principal agreement and other agreements as per terms of the agreements on the ground that the appellant had failed to make the defaults good, notified by the respondents within the time period of 30 days provided in the notice. (v) On 15.01.2002, the appellant had denied the allegations made by the respondents in the notice dated 08.01.2002. (w) On 25.02.2002, the apex Court had appointed the Arbitrator on behalf of respondents and an Arbitral Tribunal was constituted. (x) On 26.08.2003, the apex Court had transferred all the proceedings pending before the District Court, Jabalpur to the Arbitral Tribunal constituted under order dated 25.02.2002. [7]. (y) Thereafter the Arbitral Tribunal had proceeded in the matter, allowed the parties to submit their claims, recorded evidence and on 23.08.2004, the Arbitral Tribunal had passed an award and the claim of the appellant was allowed in following terms:- (i) That the 3 Bank Guarantees were wrongly invoked and encashed by the respondents. (ii) The agreements were wrongfully terminated by the respondents. (iii) The agreements were voidable at the option of the appellants. (iv) Under Schedule "FF" a sum of Rs.39,80,98,429/- with interest at the rate of 12% per annum from 05.07.2001 till its payment. (v) Under Schedule "GG" a sum of Rs.11,14,55,042/- with interest at the rate of 12% per annum from 29.07.2002 till its payment. (vi) A sum of Rs.20,00,000/- by way of cost. (vii) The Arbitral Tribunal had rejected the claims of the appellant under Schedule "HH" and counter claim of the respondent. (z) On 10.12.2004, respondents had filed an application before the District Judge, Jabalpur under section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the award. (za) On 04.10.2008, the VII Additional District Judge, Jabalpur had passed the impugned order by which the award passed by the Arbitral Tribunal was set aside.
3. Before the Arbitral Tribunal 16 issues were framed which reads as under:- "1. Whether the Respondents had supplied the technical documents and information to the [8]. Claimants as required by Clause 5.8(iv) of the Onshore Services Agreement ?.
2. Whether the Claimants had waived the production of the Letter of Comfort of the Power Finance Corporation as required by Clause 5.6 of the Onshore Supply Contract and Schedule 7.
3. Thereto and Clause 5.14 of the Onshore Services Contract and Schedule 7 thereto?.
4. Whether the issuance of the Letter of Comfort/ Support by Power Finance Corporation to Asia Power Projects Pvt. Ltd. (Claimant No.2) ("ASPL") was a fundamental condition of the contract agreements?.
5. Whether Units 3 and 4 of the Amarkantak Power Station did in fact operate at a capacity of 120 MW when they were first installed in 1997 when operating in accordance with Good Industry Practice as warranted by the Respondent in Clause 19.2(vii) of the conditions of contract for Offshore and Onshore Supplies and Clause 20.2(vii) of the conditions of contract for Onshore Services?.
6. Whether the Respondents co-operated with the Claimants in carrying out the RLA tests?.
7. Whether the Respondents' insistence on approving the Claimants' vendors was legal?.
8. Whether the unilateral amendment by the Respondents of the Letter of Credit without the consent in writing of Ansaldo Energia S.P.A.- Claimant No.1 ("Ansaldo") was wrongful and whether such amendment required the consent of Ansaldo and/or its bankers?. [9].
9. Whether the invocation and encashment by the Respondents of the Bank Guarantees was wrongful, premature, illegal and fraudulent?.
10. Whether the termination of the Contract Agreements by the Respondents was wrongful?.
11. Whether the Claimants are entitled to the amount claimed in Exhibit FF to the Statement of Claim?.
12. Whether the Claimants are entitled to the amount claimed in Exhibit GG to the Statement of Claim?.
13. Whether the Claimants are entitled to the amount claimed in Exhibit HH to the Statement of claim?.
14. Whether the Respondents is entitled to any of the amounts claimed by it in its Counter Claim?.
15. Whether the Tribunal should award the continuation of the Interim Order of the Jabalpur District Court dated July 6 and July 7, 2001?.
16. What order should the Tribunal pronounce for costs?."
4. (a) The Arbitral Tribunal recorded its finding in respect of issues no.1 and 4 that there was a breach on the part of the respondent of the contract including warranty, therefore, the respondents were liable for not performance of the contract. So far as issue nos.2 and 3 are concerned, the Tribunal had held that not production of letter of comfort as a pre- condition to the zero-date was a fundamental condition of the contract and it was a failure on the part of the respondents to fulfill the same. On the basis of it, the Arbitral Tribunal had found that the respondents [10]. had committed a breach of the contract. (b) While deciding issue no.5 the Tribunal had found that the respondents had failed to cooperate in concluding the RLA tests within the time period prescribed and the breach of the contract was on the part of respondents. The Tribunal while deciding issue no.6 had held that the respondents were insisting on the condition for approval of the vendors but it was not justified and contrary to the terms of the contract. The respondents were responsible for long delay in execution of the contract. The Tribunal had also held that the appellant had not produced any evidence to show that there was any loss on the ground of long delay. The Tribunal while deciding issue no.7 had held that there was no breach on the part of the respondents in respect of off- shore supply agreement. While deciding issue no.8 and 9, the Arbitral Tribunal had found that the invocation of bank guarantees by the respondents was contrary to the terms of the guarantee and it was an erroneous recovery by the respondents of the bank guarantees and the amounts so recovered was liable to be restored to the appellant. (c) The Arbitral Tribunal while deciding issue nos.10, 11 and 12 had directed refund of the amount recovered by the respondents under bank guarantee which was covered by Ex.FF to the statement of claim of the appellant. (d) The Tribunal while deciding issue Nos.10 to 12 had held that the appellants had proved the losses suffered by them and covered by Ex.GG to the statement of claim. The Tribunal had disallowed the claim of appellant in so far as it relates Ex.HH of the statement of claim on the ground that the appellants had not raised the same prior to submission of the statement of claim and was raised for the first time of invocation of Arbitration agreement. (e) The Tribunal while deciding issue no.12 had dismissed the counter claim lodged by respondent. [11]. (f) The Tribunal had also awarded a cost in favour of the appellant. 5.(a) The Additional District Judge while considering the matter under section 34 of the Arbitration and Conciliation Act, 1996 held thus:- (i) In so far as issue Nos.1 to 7 are concerned, the findings recorded by the Arbitral Tribunal are affirmed. (ii) Additional District Judge has reversed the finding of Tribunal and decided issue nos.10 to 12 in favour of the respondents by holding that the respondents had not committed breach of the contract on various aspects and were not liable for consequences. (b) The Additional District Judge by the impugned order set aside the award passed by the Tribunal on following grounds also:- (i) That, the amount of bank guarantees described in para 54 of the order as (a), (b), (c) were wrongly awarded and the Tribunal had crossed the limits of illegality. The award passed by the Tribunal in respect of indemnity bank guarantee in the sum at 12.5% of the contract price and performance guarantee in the sum at 15% of the contract price which were in fact not submitted by the appellant at all. On the aforesaid ground, the Additional District Judge had found that the Tribunal had dealt with the dispute, which was not submitted before the Tribunal. It was beyond the scope of the dispute. The Tribunal had violated section 28(3) and section 34(2)(a)(iv) so the award was liable to be set aside. The Additional District Judge in para 57 of the impugned order had found that the Tribunal had considered those bank guarantees which were not submitted by the appellant at all. The Tribunal [12]. had dealt with the bank guarantee in the sum of 10% of the contract price which had existed as security for performance of the contract. However, other two bank guarantees in the sum of 12% and 15% of the contract price were never submitted by the appellant and there was no dispute in this regard between both the parties. The Additional District Judge has held that the findings recorded by the Tribunal were based on the facts which were not submitted before it. On the basis of this, the Additional District Judge has found that the Tribunal had traveled beyond jurisdiction in passing the award. (c) That the termination of the contract was in accordance with the clause 16 and 17 of the contract. The Tribunal had erred in connecting the encashment of bank guarantees with termination of the contract. The termination of the contract and invocation of bank guarantees were two different issues and had no concern with each other. The Additional District Judge has also found in para 63 of the impugned judgment that the Tribunal had not recorded any finding in respect of bank guarantees pertaining to the advance payment and the award was passed for payment of the amount of these bank guarantees specified in Ex.FF of the statement of claim which was patently illegal and unjust. (d) On the aforesaid ground, the Additional District Judge has found that the award was contrary and in excess of the contract agreement and on this ground the award was set aside. This order is under challenge in this appeal.
6. Shri S.U. Kamdar, learned Senior Advocate had drawn our attention to the following facts:- (a) That the Principal Agreement executed by and between the parties under clause 4 thereof, it was required to issue a performance bond for the sum of 10% of the total contract price for performance of the contract (Clause 4 of the Principal contract). In pursuance thereof a performance bond dated 24th [13]. February 2000 was executed by the appellants in favour of the respondent for the sum of 10% of the contract price. The performance bond, interalia, had stipulated that the same will be valid and binding on the bank and will be liable to be invoked in the event of the failure on the part of the appellants to perform the contract. (b) That under clause 9.2 of Onshore Supply Contract dated 24th August, 2009 advance bank guarantee was required to be executed. The advance bank guarantee was in respect of 10% of the contract price covered by the Onshore Supply Contract which amounted to Rs.9,29,20,000/-. On receipt of the advance amount, the advance Bank Guarantee was executed on 22nd February, 2000. The bank guarantee, interalia, provided for invocation in the eventuality set out in clause 4 thereof which reads as under: "On account of the not fulfillment of the contractual obligations by the Debtor, the surety shall, on simple demand from the creditor, in writing, pay to the Creditor the sum under Clause 1 above, without demur and without requiring the Creditor to invoke any legal remedy that may be available to them to compel Surety to pay the same even if the Debtor consider such demand of the Creditor unjustified."
(c) That a second bank guarantee for an amount of US$ 17,08,100 was also executed in pursuance of the Offshore Supply Agreement dated 24th August, 1999. In pursuance of the said agreement of Offshore Supply the bank guarantee was executed on receipt of the said amount of 10% of the price of the Offshore Supply Agreement being US$ 17,08,100. The bank guarantee also contemplated invocation of the same in the event of the eventuality occurring as stated in clause 4 thereof. The clause 4 of the second advance bank guarantee was identical in terms as referred hereinabove. The second bank guarantee had also contemplated invocation only in the event of the non- [14]. performance of the contract by the appellants herein. (d) That on wrongful invocation of all the three bank guarantees disputes were raised by the appellants for recovery of the amount which was already received by the respondents from the banks. Accordingly claim was raised before the Arbitral Tribunal for the refund of the bank guarantee amount wrongfully invoked and recovered by the respondents herein. The claim for the bank guarantee was set out in para 7 of the Statement of Claim. (e) That the invocation of the bank guarantee was bad in law because this was conditional bank guarantee and it could have been invoked only in the event of the eventualities mentioned in clause 4, that was non-fulfillment of the contractual obligations by the appellants herein. (f) That under para 7 of the Statement of Claim, the claim for refund of the bank guarantee was raised. The claim was set out in the particulars of Claim being Ex.FF. The appellant had claimed for reimbursement of the bank guarantee amount along with interest and expenses incurred by the appellants due to the erroneous invocation of the bank guarantee by the respondents herein. The Arbitral Tribunal had recorded its finding about conditional and unconditional Bank Guarantees and had reached to the conclusion that the invocation of Bank Guarantees was wrongful, on following grounds:- (1) That the notice to cure defaults required under the contract was not served. (2) That the allegations that the appellants were in breach of the agreement were incorrect. On the aforesaid grounds, the Arbitral Tribunal had found that the respondents were liable to refund the amount of Bank [15]. Guarantees. (g) The aforesaid award was challenged before the District Judge by the respondents under Section 34 of the Arbitration and Conciliation Act, 1996 on the following grounds:- (1) That the Bank Guarantees were independent agreements between the Bankers of the claimants and the respondents therein and thus the respondents were fully entitled to encash the Bank Guarantees unequivocally, unconditionally and demand in writing. (2) That the Arbitral Tribunal had wrongly relied upon the clause 16.3, 16.4 of the Offshore Supply Agreement and clauses 17.3 and 17.4 of the Onshore Service Agreement whereas the Bank Guarantees were given under clause 9.2(a) of the Onshore Supply Agreement and clause 9.2(a) of the Offshore Supply Agreement. (3) That respondents had followed the procedure prescribed under the agreement in terminating the agreements and the notice of default was rightly served. (4) That the award of Arbitral Tribunal holding that the invocation was bad in law was against the public policy because under the Reserve Bank of India circular, copy of the bill of entry for the import of the material was to be produced within 15 months from commencement of the date of order, alternatively the money had to be repatriated back to India in view of not supply having been effected. Under the circular of the Reserve Bank of India it was necessary to invoke the bank guarantee to get the money back. (h) That the Additional District Judge had recorded its finding from para 54 onwards in the impugned order and the award passed by the Arbitral Tribunal was set aside. The Additional District Judge after recording findings in para 63 of the order held that the Arbitral Tribunal had gone beyond the scope of contract [16]. and in para 67 it was held that the award for the payment of amount of the Bank Guarantees with interest was patently illegal and goes to the root of the matter and that part of the award directing the respondents to refund the amount which was wrongfully encashed by the encashment of the Bank Guarantees was set aside.
7. It was submitted by Shri S.U. Kamdar, Senior Advocate that the Bank Guarantees could have been invoked only on the basis of terms of Bank Guarantees and not otherwise. It being an independent contract and was not available to the respondents to encash the Bank Guarantees when the disputes between the parties was for the refund of the amount of the wrongful invocation of the Bank Guarantees. The Additional District Judge while deciding the matter though recorded a finding that there was breach of the contract on the part of the respondents and not the appellants, then it was not open to the Additional District Judge to set aside reimbursement of the amount particularly when the amount was liable to be paid under Bank Guarantees only if under clause 43 there was a breach or not performance by the appellants. (a) That the learned Additional District Judge while setting aside the claim under two Bank Guarantees on the ground that it was advance payment, it has also set aside the claim for reimbursement of the amount recovered under the performance Bank Guarantee. The findings of the court below are contrary to the pleadings before the Arbitral Tribunal and self-contradictory as the Arbitral Tribunal’s findings were upheld in para 61 of the order. But in para 63 the Additional District Judge has set aside the aforesaid findings, which are contradictory to each other and the order suffers from serious infirmity. The court below has also not considered clause 4 of the advance Bank Guarantees which was considered by the Arbitral Tribunal and upheld by the Tribunal. [17]. (b) So far as claim of the appellant for interest as claimed in Ex.FF was rightly allowed by the Tribunal. The appellants herein had claimed interest at the rate of 18% per annum as demanded by ANZ Grindlays Bank from the Bankers of the appellants for the period 04.07.2001 to 20.11.2001 because the Bank Guarantee was invoked on 23.06.2001. The payments were made by ANZ Grindlays Bank to the respondents on 04.07.2001 and the payment was made by appellants' banker to ANZ Grindlays Bank on 24.07.2001. So the claim was raised for a sum of Rs.4,79,665/- on the basis of actual interest claimed by ANZ Grindlays Bank and paid by the appellants bankers at San Paolo for the period from 4.7.2001 to 20.11.2001 interest was claimed on the basis that after 20.11.2001 money was wrongly retained by the respondents and the date 31.07.2002 was taken as the date of filing of statement of claim before the Arbitral Tribunal. (c) The claim in respect of interest was a natural consequence of wrongful retention of the Bank Guarantee amount by the respondents and also on the basis of wrongful invocation of Bank Guarantees. In so far as the period from 04.07.2001 to 20.11.2001 is concerned, the amount of interest was actually received by the respondents from ANZ Grindlays Bank and as it was the actual amount paid by the appellants Bank to ANZ Grindlays Bank so the appellants were rightly found entitled for the said amount by the Tribunal for the period subsequent to the aforesaid. The amount was claimed on the basis of wrongful retention of the amount by the respondents in respect of Bank Guarantees amount. (d) That clause 14.2 which had been relied on by the respondents does not contain any prohibition from awarding the claim of interest or charges which were actually incurred by the appellants. So far as the interest is concerned, the amount of interest was already paid by the appellants Bank to the [18]. respondents and further interest was claimed when the amount has been retained by the respondents. The clause 14.2 does not contain any such eventuality. The bank charges were actually paid by the appellants to ANZ Grindlays Bank. It was not barred by clause 14.2 of the contract. Clause 14.2 reads as under:- "14.2 Subject to the payment of delay liquidated damages neither the party liable not any of its officers, employees or agents shall in any circumstances whatsoever be liable to the other party for: (i) Any loss of profit, loss of revenue, loss of use, loss of contract or loss of goodwill; or (ii) Any indirect or consequential loss; or (iii) Loss resulting from the liability of the other party to any other person howsoever and wheresoever arising."
(e) That the appellants had claimed under Ex.GG an amount for various equipments ordered for manufacturing and to be supplied to the respondents. In Ex.GG various items which were at different stages of manufacturing were shown. These items were to be supplied to the respondents under contract agreement. In this regard specific pleadings were made in para 13.5 of the Statement of Claim. The appellants were entitled to receive the payment for the aforesaid amount pursuant to clause 17.2 of the offshore supply agreement and clause 18.2 of the onshore service agreement. That RLA study was completed and handed over and various other items were under manufacturing. (f) The appellants had produced Mr. Fabio Rolla as a witness to establish its case. Mr. Fabio Rolla had recorded his statements in which he had produced all the documents to show that in fact the amounts were paid to various parties and were required to be reimbursed by the respondents. In this regard, the witness had produced the material documents to establish such claims. The statement of Mr. Fabio Rolla was not cross examined by the respondents herein. The one para cross examination of the [19]. witness has been reproduced by the Arbitral Tribunal in the award indicating that the entire evidence of Mr. Fabio Rolla was not challenged. As there was no cross examination on material evidence, the Arbitral Tribunal had rightly held that the appellants were entitled to the said claim. (g) That the Arbitral Tribunal had found that the Drum Level System was ready for delivery and it was duly inspected. Because of not providing dispatch clearance by the respondents, it was not delivered. So far as the UPS system is concerned, it was also inspected and was ready for delivery but dispatch clearance was not issued by the respondents. The Pressure Parts were also in the manufacturing process and were not ready. However, the appellants had claimed only that part of the amount which were paid by the appellants to the contractors. RLA Study was carried out and report was already delivered to the respondents. These all aspects were duly explained by witness Fabio Rolla and he was not cross examined on the vital issues by the respondents. Before the Arbitral Tribunal, certain points were not challenged and for the first time these were agitated before the Civil Court under Section 34 of the Act. Before the Arbitral Tribunal, the respondents had never demanded delivery of the goods which were ready for delivery. Once it was found that there was breach on the part of the respondents, then the appellants were entitled to the amount which was actually paid by the appellants and they were entitled to be reimbursed for the said amount. (h) That though the Additional District Judge has found that the award of Arbitral Tribunal was bad in law because clauses 17.2 and 18.2 of the contract provides that any costs incurred by the ANSALDO after the termination of the contract, there shall be no liability of the Board but the aforesaid clauses are in two parts. The learned Additional District Judge while considering clause [20]. 17.2 has ignored clause 17.2(ii) which expressly provides that if any cost is incurred by ANSALDO even after the date of termination, the Board shall be liable to make good the loss. Even if clause 17.1 is made applicable, the payment of the work already performed ought to be made by the respondents. (i) The appellants had substantially carried out the work and paid substantial amount to the contractors for manufacturing the equipments. The respondents had never demanded delivery apart from this incomplete equipments could never have been delivered but in spite of this the learned Additional District Judge without considering this factual aspect has set aside the award on the ground that it was contrary to clause 17.2 of the agreement. Under clause 17.2 there was no prohibition. Apart from this, if two views were possible and one view was taken by the Arbitral Tribunal then it was final and binding and could not have been interfered by the court below. Stating aforesaid, it was submitted that the order passed by the Additional District Judge may be set aside.
8. Shri R.N. Singh, learned Senior Advocate assisted by Shri A.J.Pawar, Advocate has supported the impugned order. It was submitted by him that the Additional District Judge has rightly interfered in the award as the same was patently illegal and was made by overlooking the terms and conditions of the contract agreement. The Tribunal though had concluded the issues of misrepresentation in favour of the appellant and against the respondent but had not awarded any amount in lieu thereof. The Arbitral Tribunal had only said that the invocation of bank guarantee, in the circumstances, was bad in law which fact was taken care of by the Additional District Judge that the bank guarantees were encashed after the appellant had declared the contract expired by its letter dated 21.06.2001 and suspended its performance. The Additional District Judge has also considered that the termination of the contract and invocation of bank [21]. guarantees were two different and distinct issues, so interference by the court in the impugned award was fully justified as the Arbitral Tribunal had traveled beyond the terms and conditions of the contract agreement and had committed a patent illegality. The Arbitral Tribunal had discussed two bank guarantees referred in clause 4.2 and 4.3 of the principal agreement which were never submitted by the appellant ANSALDO but had directed payment of the amount of bank guarantees which were issued against two advance payment made by respondents under clause 9.2 of both the agreements, off-shore supply and on-shore supply. It was also submitted by him that the two bank guarantees were issued against two advances of 10% made by respondents M.P.E.B. and this fact was taken note of in para 62 and 63 of the order by the Additional District Judge and Additional District Judge has rightly found that the claim of the amount of the bank guarantees was amount to duplication of the claim which was barred under clause 5.1 of the principal agreement. (A) It was also submitted by Shri R.N. Singh, learned Senior Advocate that the bank guarantees furnished by the appellant were unconditional and unequivocal as is clear from a perusal of clause 4, 6 and 10 of the bank guarantees. The respondent was fully justified in encashing three bank guarantees after the appellant had declared the contract automatically expired without any liability on either side by its letter dated 21.06.2001. (B) Relying on the judgment of Mahatma Gandhi Sahakra Sakkare Karkhane vs. National Heavy Engg. Coop. Ltd and another, (2007) 6 SCC 47.it was submitted that in case of unconditional bank guarantee it is for the owner/purchaser to ascertain whether the amount of bank guarantee has become recoverable. He has also placed reliance to the apex Court judgment in Daewoo Motors India Ltd. vs. Union of India and others, (2003) 4 SCC 69.and submitted that the bank [22]. guarantee was absolute and unequivocal. (C) That, the advance payments made by the respondents to the appellants were interest free, so the Arbitral Tribunal had erred in awarding the interest which was contrary to the conditions of the contract agreement and was shocking to the conscience of the Court. The payment of interest was clearly prohibited under clause 14.2 (ii) and (iii) of the agreements and on the basis of the judgment of the apex Court in Pure Helium India (P) Ltd. vs. Oil & Natural Gas Commission, (2003) 8 SCC 593.the award was rightly set aside by the Additional District Judge. The Arbitral Tribunal had traveled beyond the four corners of the contract and had erred in awarding the amount which was prohibited by the terms of the agreement so the Additional District Judge has rightly set aside the award. Reliance was placed to the judgment of Apex Court in Grid Corporation of Orissa Ltd. and another vs. Balasore Technical School (2000) 9 SCC 55.and Delhi Development Authority vs. R.S. Sharma and Company, (2008) 13 SCC 80.(D) That as per the appellant itself the drawings and designs parameters were not provided to it then on what parameters, the equipments were manufactured, the appellant could not prove before the Arbitral Tribunal. The appellant's witness Fabio Rolla had admitted this fact in his cross examination. (E) Under clause 17.2(i) it was stipulated that the respondents would make payment of the equipments supplied only, while no such equipments were supplied by the appellants. In the agreement, it was also stipulated that upon termination of the agreement, any remaining equipment for which payment had been received by the appellants, shall stand transferred to the respondent. Though the Arbitral Tribunal had awarded cost of such equipments to the appellants, but had failed to make any [23]. stipulation in respect of supply of equipment to the respondents, which was contrary to the clause 17.2 and 17.3 of the agreement. The Additional District Judge has rightly considered all these aspects and has rightly set aside the award. That none of the equipments, raw material and engineering documents were supplied to the respondents as per clause 17.3 of the agreement, so there was no question of any payment in this regard. (F) That the award which was contrary to the terms of the contract or was patently illegal or was prejudicial to the rights of the parties, was liable to be set aside, as has been held by the apex Court in R.S. Sharma (supra). It was also submitted that the award could have been set aside if it was unfair, unreasonable and it shocks the conscience of the Court. The Additional District Judge has specifically recorded findings in para 75 of the impugned order in this regard. On these contentions, it was submitted by Shri R.N. Singh that this appeal is without merit and may be dismissed with cost.
9. In the light of the aforesaid contentions, the matter can be considered thus:- (A) By order dated 26.02.2002 the Supreme Court of India had constituted an Arbitral Tribunal consisting Mr. Justice M.N. Chandurkar and Mr. Justice S.C. Agrawal as the second Arbitrator. These two judges had thereafter appointed Justice Y.V. Chandrachud, Former Chief Justice of India as Arbitrator. In the course of arbitral proceedings, Mr. Justice M.N. Chandurkar had passed away so the appellants had appointed Mr. Justice S.P. Bharucha, Former C.J.I. Thereafter the Arbitral Tribunal consisting Mr. Justice Y.V. Chandrachud as Presiding Officer, Justice S.P. Bharucha as an Arbitrator appointed by the appellants and Justice S.C. Agrawal as Second Arbitrator, had heard the matter. [24]. Both the parties had led evidence before the Tribunal. The award was passed unanimously by the Arbitral Tribunal allowing part of the claims and rejecting part of the claims raised by the appellants and also counter claim of respondent. (B) The Arbitral Tribunal had framed 16 issues in respect of the dispute which are referred hereinabove. The Arbitral Tribunal had recorded findings in respect of issues No.1 to 4, holding that there was a breach on the part of the respondents of essential terms and conditions including warranty and, therefore, the respondents were liable for non-performance of the contract. Issue Nos.2 and 3 were also decided in favour of the appellants in which it was held that production of Letter of Comfort was a pre- condition to the Zero Date and in fact it was a fundamental condition of the contract and there was failure on the part of the respondents to fulfill the same. The Arbitral Tribunal had found that the respondents had committed breach of the contract. While deciding the issue No.5, the Arbitral Tribunal had recorded findings that the respondents had failed to cooperate in concluding RLA Study within time and thus the respondents had committed breach of the contract. In respect of issue no.6 the Arbitral Tribunal had found that the respondents were insisting on certain conditions such as approval of vendors and had found that such action of the respondents were unjustified and contrary to the terms of the contract and because of this, long delay was caused in execution of the contract. The Tribunal had also recorded finding that because of such delay no consequent loss could be proved by the appellants. So far as issue No.7 is concerned, the Arbitral Tribunal had found that the amendment to the letter of credit by itself was not sufficient to prove that the respondents had committed breach of the offshore supply agreement. (C) In respect of issue nos.8 and 9 the Arbitral Tribunal had [25]. held that the invocation of Bank Guarantees by the respondents was contrary to the terms of the guarantee and there was erroneous recovery of the amount of Bank Guarantees which required to be restored to the appellants. In respect of issues No.10, 11 and 12, the Tribunal had passed an award directing refund of the amount recovered by the respondents under the Bank Guarantees as per claim Ex.FF of the appellants. (D) In respect of issues No.10 to 12 the Arbitral Tribunal had held that the appellants had proved the losses suffered by them which were covered by Ex.GG to the statement of claim. In respect of claim Ex.HH, the Arbitral Tribunal had disallowed the claim on the ground that the appellants had not raised the same prior to submission of the statement of claim and for the first time it was raised at the time of invocation of the arbitration agreement and rejected the said claim. The Arbitral Tribunal while deciding issue No.13 had dismissed the counter claim of the respondents. The Arbitral Tribunal had also continued the interim orders passed under section 9 of the proceedings by the District Court while deciding the issue No.14. The Arbitral Tribunal had also allowed cost to the appellants from the respondents.
10. It will be pertinent to mention that in respect of rejection of the claim Ex.HH, appellants had also preferred application under Section 34 of the Arbitration and Conciliation Act but it was dismissed by the Additional District Judge. The same was subject matter of Arbitration Appeal M.A. No.1812/2007 which has been withdrawn by the appellants. So in this appeal claim of the appellants in respect of claim Ex.HH has not been considered as the aforesaid has not been challenged before this Court and the appeal against such an order has already been dismissed as withdrawn. [26].
11. The respondents have also not challenged the order in respect of rejection of counter claim of the respondents. So this aspect has also not been considered in this appeal.
12. Against the order passed by the Tribunal, a petition under Section 34 of the Arbitration and Conciliation Act was filed before the Additional District Judge. The Additional District Judge by the impugned order dated 04.10.2008 had confirmed the findings of the Tribunal in so far as the question of breach of contract is concerned. The learned Additional District Judge has found that the findings of the Arbitral Tribunal cannot be interfered with under Section 34 of the Act and these findings were upheld. [See para 44 of the of the impugned order].. The Additional District Judge in para 53 of the impugned order has held in respect of issue Nos.4, 5, 6 and 7 that the aforesaid findings and conclusions arrived at by the Tribunal were in accordance with law and were not interfered.
13. In respect of clause 14.2 of onshore supply agreement the Arbitral Tribunal had interpreted the same but without considering the reasonings assigned by the Tribunal, the Additional District Judge set aside the aforesaid findings which was beyond the jurisdiction of the Additional District Judge. The Additional District Judge ought to have considered the findings recorded by the Tribunal in that regard.
14. The Arbitral Tribunal had passed the award mainly on following three grounds:- (i) That the respondents-Board had wrongly invoked and encashed the three bank guarantees. (ii) The Board had wrongly terminated the contract. (iii) That the agreement was voidable at the instance of appellant Ansaldo company which was wrongly declared as void. [27]. The Arbitral Tribunal on the aforesaid ground, passed the award against the respondents in following manner:- (1) The respondents shall pay to the appellants Rs.39,80,98,429/- along with interest 12% per annum from 05.07.2001 till the date of award and payment of the aforesaid amount. (2) That the respondents shall make payment of Rs.11,14,55,042/- to the appellants till the date of award and thereafter payment of the aforesaid amount. (3) That the respondents shall make payment of Rs.20,00,000/- towards cost, expenses of arbitration process.
15. This award was challenged before the court below mainly on following grounds:- (1) That the Arbitral Tribunal had not appointed expert to decide the issue. (2) That the tribunal had misconducted. (3) That the Tribunal had passed the award in contrary to the conditions of the contract. (4) That the award is beyond the jurisdiction. (5) That the conclusion of the Arbitral Tribunal in the award are self contradictory. (6) That the award was patently illegal. (7) That the award was against the public policy. The court below considered objections No.1 and 2 in para 30 to 44 of the impugned order and recorded findings in favour of the appellants. The court below specifically held that the Tribunal has not committed any wrong in not appointing the expert. The Tribunal was within its jurisdiction to decide the legal issues in respect of the contract and such could not have been interfered by the court under section 34 of the Act. That there was no misconduct on the part of the Tribunal and under the Act of 1996, on such ground, the award could not have been [28]. challenged. The court below considered various judgments of the Apex Court while deciding the aforesaid issues in favour of the appellants. (a) So far as the objections No.3, 4, 5 and 6 are concerned, the court below considered these questions in para 45 onwards and recorded following findings:- (1) That in respect of findings recorded by the Tribunal, those could not have been interfered under section 34 of the Act. The court also cannot re-appreciate the evidence for recording its own conclusions in this regard. In para 53 it has been held by the court that in respect of letter of comfort and letter of credit, the findings recorded by the Tribunal cannot be interfered. (2) In para 54 of the order the court below considered that the Tribunal had considered three bank guarantees. (a) For performance security of performance bond contract, 10% of the total price. (b) Indemnity bank guarantee of 12.5% of total price for achieving guaranteed parameters. (c) Performance guarantee of 15% of the total price for performance of both the units for 3 years. The court below found that the second and third bank guarantees were not furnished by the appellants and in fact following guarantees were furnished by the appellants to the respondents:- (1) Under clause 4.1 of principal agreement, security for performance of the contract- 10% of the total price. (2) Under clause 9.2 of Offshore supply agreement - 10% of the contract price. (3) Under clause 9.2 of Onshore supply agreement- 10% of the contract price. (3) The court below in para 55 of the order recorded a finding that the Tribunal had passed an award in respect of all the [29]. three guarantees and thereby committed an illegality as two bank guarantees were furnished by the appellants. This finding has been recorded in para 55 of the judgment and thereafter the court below recorded a finding that the Tribunal had acted beyond the scope of Arbitration and such award was liable to be set aside under Section 38(3) and 34(2)(a)(iv) of the Act.
16. The aforesaid findings recoded by the court below are incorrect. In this regard, it would be appropriate to refer relevant paragraph of the award passed by the Arbitral Tribunal:- "Under the terms of the agreements, the Respondent was obliged to serve upon the Claimants a notice to cure defaults within a cure period of not less than 30 days from the receipt of the notice. It was only in the event of the Claimants' failure to cure the defaults within the cure period that the Respondent would terminate the agreements on the basis that the Claimants had failed to fulfill their obligations thereunder and it was only then that the Respondent could lawfully have claimed from ANZ the amounts of the bank guarantees. The claim upon the bank guarantees in the manner in which it was made by the Respondent was bad in law. After receipt of the amounts of the bank guarantees, the Respondent obviously realized that the invocation of the bank guarantees had been improper for the reason that the Claimants had not been given the requisite cure period. It was, therefore, that on 29th August, 2001 it served upon the Claimants the notice of default. [30]. Having given the notice of default, it is not open to the Respondent to urge that, by their letter of 21st June, 2001, the Claimants had terminated the agreements. The Respondent did not, along with the notice of default or about that time, restore to the Claimants or ANZ the amounts that it had received under the bank guarantees. Retaining the amounts of the bank guarantees as it did on the basis that the Claimants were in breach of the agreements, the Respondent was not entitled to ask the Claimants to cure the alleged defaults or take any other step under the agreements. The termination of the agreements by the Respondent upon the Claimants' alleged failure to cure the defaults must, therefore, also be held to be bad in law."
While deciding issue nos.10 to 12 the Arbitral Tribunal had considered the matter and it would be appropriate to refer the findings of the Tribunal in this regard which reads as under:- "Issue Nos.10 to 12 question whether the Claimants are entitled to recover the amounts claimed in Exhibits FF, GG and HH to the Statement of Claim. The Claimants submit that they are entitled to require the Respondent to refund the amounts of the three bank guarantees and the expense therein, with interest, aggregating to US$ 9,258,103.00 which Sanpaolo, the Claimants' bank, has already paid over to ANZ. The particulars of this amount are stated in Ex.FF. [31]. The Claimants contend that they are also entitled to receive, for the wrongful termination of the agreements by the Respondent, the values of the RLA study, the electronic drum level indicator, UPS system-20 KBA, boiler pressure box and engineering drawings either supplied to the Respondent or not supplied because of the termination of the agreements, the sum of Rs.1,11,455,042.00 (equivalent to US $ 2,385,138). The Claimants also claim to be entitled to damages for the wrongful breach of the agreements under the various heads set out in Ex.HH, aggregating to US$ 37,079,667. On all of these amounts the Claimants claim interest at the rate of 13.5% per annum and further interest on the sum awarded by the Tribunal at the same rate until payment or realization. The claim for damages is supported by the very detailed affidavit in lieu of examination-in- chief of Fabio Rolla. It is, we think, fair to say that there has been next to no cross-examination of Rolla. To substantiate the statement his cross examination is reproduced below in its entirety: Quote: I am working in the Project Management Department of the Claimants. I am aware of all the terms and conditions of the contract between the Claimants and the Respondent. The items mentioned in paragraph 3 of my affidavit were not delivered to the Respondent at the site. They were available for being supplied in the stores of our sub-suppliers whose names are mentioned in [32]. exhibits 13, 14 and 15 annexed to my affidavit. I am aware that the Respondent did not perform some of its obligations under the contract. For example, the Respondent did not furnish to the claimants the necessary information regarding the actual performance of the steam turbine. The Respondent also did not furnish to the Claimants the Comfort letter ensuring payments under the contract. The Comfort letter was to be issued by the Power Finance Corporation. Cross examination concluded. No re-examination by counsel for the Claimants. Unquote It was submitted by learned counsel for the Claimants that the Claimants were entitled to damages for breach of contract and consequent upon their rightful rescission of the agreement. He also drew our attention to the clause in the agreement relating to termination, which reads thus: Quote:
17. Termination 17.1.1 If (i) a substantial breach specified in a notice under Clause 16.3 is not remedied within the Cure Period; or (ii) a Force Majeure has occurred and has continued as indicated in Clause 15.5; then the non-Defaulting Party, in the circumstances of sub-clause (i), and either party, in the circumstances of sub-clause (ii), may without prejudice to any other right or remedy in respect of any pre-existing breach, terminate this Agreement by further notice in [33]. writing to the Defaulting Party. 17.2. Upon termination of this Agreement, MPEB shall pay to the ANSALDO, in full the following: (i) the value of the Equipment supplied and any other work performed up to the date of termination which was not previous paid by MPEB; (ii) any costs incurred by ANSALDO after the date of termination incurred as a result of termination due to fault MPEB. 17.3. Upon termination of this Agreement, any remaining Equipment for which payment has been received by Ansaldo shall stand transferred to MPEB. Unquote The response of learned counsel for the Respondents was that the claims made in the exhibits were exorbitant and bogus. As we have shown, no cross-examination was directed to establish that the claims in the aforementioned exhibits were exorbitant or bogus. It must follow, therefore, having regard to what we have held that the Claimants are entitled to recover the amounts specified in Exs. FF and GG. In so far as Ex.HH is concerned, it is a statement of damages for the wrongful termination of the agreements under the heads project management activities, engineering activities, the performance study performed by Alstom Power, boiler engineering activities performed by ABDC, boiler engineering activities [34]. performed by the first Claimant, other engineering activities and project organization borne by the second Claimant, storage of the manufacture and purchase equipment borne by the second Claimant, opening of letter of credit by the first Claimant, bank fees paid on the three bank guarantees by the first Claimant, loss of products and overheads and loss of commercial opportunities. We find that none of the claims set out in Ex.HH were made by the Claimants at any stage prior to the submission of the Statement of Claim. In their letter dated 15th January, 2002 the Claimants indicated the disputes that were referred to arbitration. The letter refers to an earlier letter dated 28th June, 2001 whereby reference was made to arbitration in respect of the dispute arising on account of the encashment of the bank guarantees. By the letter dated 15th January, 2002 the demand for payment of Rs.10,18,54,324 with interest thereon at the rate of 18% per annum was referred to arbitration and both the disputes were consolidated. The demands made in Ex.HH were not referred to arbitration by the letter dated 15th June, 2002 or by any other letter. They have been put forward for the first time in the Statement of Claim. Since the dispute in this behalf was not raised earlier and was not referred to arbitration, we are of the view that it cannot be entertained. The claims made in Ex.HH, therefore, cannot be allowed."
Recording aforesaid findings, the Arbitral Tribunal had found that there was breach on the part of the respondents and [35]. the appellant was entitled for refund of three bank guarantees and expenses thereon with interest. The Arbitral Tribunal had allowed the claim in so far as the amounts specified in Ex.FF and Ex.GG. So far as the claim of the appellant in respect of Ex.HH is concerned, it was turned down by the Arbitral Tribunal. Against the aforesaid part of the order, though the appellants filed a petition before the court below under section 34 of the Arbitration and Conciliation Act, 1996 but it was dismissed. Against this order another Arbitration Appeal M.A. No.1812/2007 was filed but it was got dismissed by the appellants. So it is not necessary for us to examine finding in respect of Ex.FF which was turned down by the court below.
17. The court below considered the matter in respect of other issues and found in para 59 of the order that the award of the Tribunal holding the decision of the Board about termination of contract bad in law was not correct, while the Board had terminated the contract because of non- fulfilling the contractual obligations by the appellants. The appellants had not shown satisfactory progress and thereafter vide letter dated 21.06.2001, suspended the performance of the contract. The termination of the contract by the Board was under condition nos.16 and 17 of the contract. The Tribunal had erred in clubbing the encashment of bank guarantee and termination of the contract while termination of the contract and invocation of bank guarantees were two separate issues and could not have been co-related and on the aforesaid ground the court below interfered with the findings of the Tribunal. Though a contention was raised by the appellants before the court below that the bank guarantees were encashed without issuing any notice of default and such encashment was contrary to the terms of the contract but the court below in para 60 of the order has found that there was no meaning of the letter. In para 61 of the order, though the objections of the appellants were referred that the bank [36]. guarantees were by way of security and such could have been invoked only after termination of the contract and before termination of the contract, invocation and encashment of the bank guarantees was totally unjustified. But the court below had not considered this question in the order. In para 65 of the order, the court below has found that the award passed by the Tribunal was beyond the jurisdiction as it was conflicting and against the contract agreement. In para 67 of the order, the court below found that the Arbitral Tribunal had recorded its findings in respect of the bank guarantees referring clause 4 of the principal agreement, but in respect of the other two bank guarantees which were relating to the advance payment, so Tribunal had erred in passing an award in respect of all the bank guarantees. The award for the payment of the amount of the bank guarantees in respect thereof together interest was patently illegal and goes to the root of the matter. The court below in para 68 has found that the appellants had received the advance payment against the bank guarantees, submitted the claim for the same, so it was a prohibited claim for receiving the same amount again and the Tribunal had erred in passing an award in favour of the appellants.
18. In respect of clause 14.2 of the Onshore and Offshore Service Contract it has been held by the court that none of the parties were liable for the consequential losses and direct losses, loss of profit, loss of revenue, loss of use, loss of contract or loss of goodwill or liability towards other party but the Tribunal had erred in awarding interest demanded by the ANZ Grindlays Bank from Sanpaolo Bank. The claim of ANZ Grindlays Bank of costs and expenses lodged with Sanpaolo Bank, bank expenses charged by Sanpaolo Bank and the claim for Engineering documents specified in Ex.GG despite the fact that these claims were prohibited under the contract. [37]. The court in para 75 of the order held that the amount of these bank guarantees against which interest free advance payment was made to the appellants and allowing the claim along with interest thereon was patently illegal and goes to the root of the matter and was so unfair and unreasonable that it was shocking the conscience of the court.
19. In para 77 the court considered the law laid down by the apex court in Smita Conductors vs. Euro Alliance, (2001) 7 SCC 72.and held that the award passed by the Tribunal was against the public policy of the country and cannot be enforced. On the aforesaid ground the court below set aside the award passed by Tribunal. The Additional District Judge, however, held that the respondents had committed breach of the contract on various aspects but in subsequent paragraphs, the learned Additional District Judge set aside the award passed by the Tribunal.
20. The first contention of the appellant is in respect of exceeding jurisdiction by the Additional District Judge as it had considered the matter under Section 34 of the Act which was not permissible and the learned Additional District Judge has exceeded its jurisdiction in setting aside the award passed by the Tribunal. It was also submitted by the appellants that when issues no.1 to 7 were decided in favour of the appellants and in respect of which no appeal or cross objections have been filed by the respondents and these have attained finality, then on this ground alone the order of the Additional District Judge deserves to be set aside. In this regard legal position deserves to be discussed:- The Apex Court in Olympus Superstructures Pvt. Ltd. vs. Meena Vijay Khetan and others, (1999) 5 SCC 65.held that issues pertaining to the merits of the findings of fact arrived [38]. at by the Arbitral Tribunal cannot be interfered with under Section 34 of the Act. The issues relating to breach of the contract and quantum of damages are issues of facts and falls within the exclusive jurisdiction of the Arbitral Tribunal. The Apex Court in McDermott International Inc. vs. Burn Standard Co. Ltd. and others, (2006) 11 SCC 18.held that the Act of 1996 only provides for supervisory role of courts and for the review of the award passed by the Arbitral Tribunal to ensure fairness in the matter. The court cannot correct the errors of the Arbitral Tribunal. In Numaligarh Refinery Limited vs. Daelim Industrial Company Ltd., (2007) 8 SCC 46.it has been held by the Apex Court that the court cannot sit over the findings of fact recorded by the majority of the arbitrators, as an appellate Court. The Apex Court in Ravindra Kumar Gupta and Company vs. Union of India, (2010) 1 SCC 40.held that the court while deciding the matter under Section 34 of the Act cannot substitute its own view contrary to the opinion of the arbitrators who have recorded findings after appreciation of facts of the case. The Apex Court in Madnani Construction Corporation Private Limited vs. Union of India and others, (2010) 1 SCC 54.held that the arbitrator is a master of facts and once the arbitrator had recorded conclusions on the basis of record and materials which were placed before him then unless such evidence is perverse the court cannot interfere with the conclusions arrived at by the Arbitral Tribunal.
21. In the light of the aforesaid law laid down by the Apex Court, factual position in the present case may be looked into. The Additional District Judge while deciding issues No.1 to 7 as framed by Arbitral Tribunal held that the findings on these issues were correct but erred in reversing the findings on issue Nos.9 to 12 of the Arbitral Award. It was not open to the Additional District Judge to set aside the operative part of the [39]. award though the findings in respect of breach of the contract were upheld. The Additional District Judge has set aside the findings on issue nos.9 to 12 in respect of claim Ex.FF regarding refund of the amount of Bank Guarantees and the performance bond which were recovered by the respondents. The Arbitral Tribunal after interpreting the terms of Bank Guarantee held that invocation of the same by the respondents was not in accordance with the terms and conditions of the Bank Guarantees. For ready reference clause 4 of the Bank Guarantees can be referred which reads thus:- "On account of the not fulfillment of the contractual obligations by the Debtor, the surety shall, on simple demand from the Creditor, in writing, pay to the Creditor the sum under Clause 1 above, without demur and without requiring the Creditor to invoke any legal remedy that may be available to them to compel surety to pay the same even if the Debtor consider such demand of the Creditor unjustified."
Apparently, the entitlement of the respondents to encash the Bank Guarantees could have arisen only if a finding is recorded by the Court that there was breach of contractual obligations by the appellants. But in the present case, the Additional District Judge has confirmed the findings of the Arbitral Tribunal in this regard that there was no breach of any contractual obligations by the appellants but it was the respondents who had committed breach of contractual obligations. In view of the aforesaid findings, the Additional District Judge has committed error in setting aside the aforesaid findings. The Arbitral Tribunal had held that the invocation of the Bank Guarantees was illegal and contrary to the terms of the Bank Guarantees itself and the respondents were directed to refund the amount which was wrongly recovered by them of the Bank Guarantees. Though the Additional District Judge has set aside the operative part of the order only on the ground that [40]. there was a serious error by the Arbitral Tribunal but without disturbing these findings. The Arbitral Tribunal had considered clauses 16.3 and 16.4 of the onshore supplies agreement and offshore supplies agreement and also clause 17.3 and 17.4 of the onshore supplies agreement in allowing the claim of appellants. Under clause 4 of the Bank Guarantees, the invocation of the Bank Guarantees could have been made only when there was a default on the part of the appellants to fulfill the contractual obligations and breach of obligations by the appellants which was not found proved by any of them. Anyhow any party, for invocation of the Bank Guarantees, could have served a written notice of 30 days on the defaulting party and if the defaulting party could not cure the defect then only the agreement could have been terminated. But in the present case, the position is entirely different. As stated hereinabove, under clause 4 of the Bank Guarantee, until and unless an agreement could have been terminated on the ground of default within the terms of clause 16.3 and 16.4 of onshore or offshore agreement or under clause 17.3 and 17.4 of onshore agreement, the Bank Guarantees could not have been invoked. The Arbitral Tribunal had rightly relied upon on the aforesaid clauses and interpreting clause 4 of the Bank Guarantees rightly recorded findings in favour of the appellants.
22. In respect of Bank Guarantees, the Apex Court in State Bank of India and another vs. Mula Sahakari Sakhar Karkhana Ltd., (2006) 6 SCC 29.has held that a document is to be interpreted on the basis of the terms embodied in the document and the court cannot supplement any word in the document. The entire contract has to be understood in the light of the terms and expressions which are used in the agreement. In New India Assurance Company Limited vs. Kusumanchi Kameshwara Rao (1997) 9 SCC 17.the Apex Court has held that when Bank Guarantee was reduced in writing the expressed [41]. terms of the agreement has to be given effect to. No evidence dehors the agreement can be led by the parties to get out from the expressed terms of the contract. In Hindustan Construction Company Limited vs. State of Bihar (1999) 8 SCC 43.the Apex Court has reiterated the aforesaid principles.
23. In the present case, the Bank Guarantees were independent contract between the Bank and the respondents. No clause was invoked of the agreement. While clause 4 of the agreement specifically provides that the Bank Guarantees could have been invoked on not fulfillment of the contractual obligations by the appellants. Until and unless the respondents were in a position to prove that the appellants had failed to prove any breach of the contractual obligations, the Bank Guarantees could not have been invoked. As stated hereinabove, findings in respect of issues no.1 to 7 were recorded by the Tribunal and also by the Additional District Judge in favour of the appellants then there was no question of invocation of Bank Guarantees.
24. So far as clause 16.3 and 16.4 of onshore and offshore supply agreements read with clause 17.3 and 17.4 of onshore services agreement are concerned, the Tribunal had recorded a finding that the invocation of Bank Guarantees was wrongful and the amount under the Bank Guarantees was wrongly encashed by the respondents who were liable to refund it. The contention of the respondents that the Bank Guarantees were furnished by the appellants against advance payment for the supply of plant and machinery which amount was already paid to the appellants and there was no supply of plant and machinery by the appellants, the respondents were fully justified in encashing the Bank Guarantees to get back the amount advanced under the said Bank Guarantees. But until and unless a factum is proved that the appellants had committed a [42]. breach of agreement, the respondents were not entitled to encash the bank guarantees.
25. In this case three Bank Guarantees were furnished by the appellants to the respondents. These Bank Guarantees were furnished on following reasons:- (a) Clause 9.2(a) of Offshore supply contract contemplated furnishing of Bank Guarantee of 10% of contract value against advance paid by the respondents. (b) Clause 9.2(a) of Onshore supply contract contemplated furnishing of Bank Guarantee of 10% of the contract value against advance paid by the respondents. (c) Clause 4.1 of Principal Agreement requiring to furnish performance guarantee for 10% of the contract value of the entire project cost. But in respect of this guarantee no advance payment was made at all. Out of the aforesaid, the two Bank Guarantees were furnished by the appellants to the respondents against advance payment made by the respondents for the purpose of supply of plant and machinery. The third Bank Guarantee was a performance guarantee furnished by the appellants to the respondents. The respondents had encashed all the three Bank Guarantees which had been directed by the Arbitral Tribunal to refund to the appellants herein. The Additional District Judge had set aside the award in respect of all the three Bank Guarantees on the ground that the appellants had never supplied the plant and machinery and, therefore, the money was required to be refunded by the appellants to the respondents.
26. On the plain reading of the Bank Guarantees, the reason assigned by the Additional District Judge does not apply to the third Bank Guarantee which was not in respect of advance made [43]. but was only in respect of performance to the effect for the completion of the contract. The Additional District Judge wrongly interpreted the third Bank Guarantee and in this regard the findings recorded by the learned Additional District Judge are totally erroneous and based on not existent facts and deserves to be reversed.
27. In respect of other two Bank Guarantees, it is the settled law that the rights of the parties are governed by the terms of Bank Guarantees and not on extraneous ground. The terms of the Bank Guarantees provide that the respondents shall be entitled for the refund of the amount advanced under the Guarantee only on the eventuality stipulated under clause 4 of the Bank Guarantee and only if there was any default in fulfillment of the contractual obligations by the appellants. In this regard, the findings of the Arbitral Tribunal were upheld by the Additional District Judge that the appellants were not in breach of any of their obligations and it is only the respondents who had committed breach thereof. In the light of it, the award of the Arbitral Tribunal directing refund of the amount, wrongfully encashed under the Bank Guarantees was totally justified and could not have been set aside by the Additional District Judge. The Arbitral Tribunal had considered the terms of the contract and had arrived at a definite finding and until and unless the aforesaid findings are set aside on the parameters as are provided in Section 34 of the Act, the Court could not have substituted its own view in the matter. The Arbitral Tribunal had considered clause 4 of the Principal Agreement which provides a performance bond and bank guarantees for performance of the contract at a later stage. The appellants had furnished performance bond as was contemplated under clause 4(a) of the Principal Agreement while the Bank Guarantees under clause 4(b) and 4(c) were neither required not were furnished under the principal agreement. The Bank Guarantees were furnished for the [44]. advance payment received by the appellants from the respondents. Merely because the Arbitration Tribunal had not reproduced clause 4(a) of the principal agreement but had referred only clause 4 of the principal agreement could not have been a ground to set aside the award passed by the Arbitral Tribunal. It appears to be an error in referring clause 4 of the principal agreement in place of clause 4(a) of the performance bond but the Additional District Judge set aside the award impressed with the aforesaid fact.
28. So far as claim of the appellants in Ex.FF which pertains to interest charges and incidental expenses which the appellants were required to spent due to invocation of the Bank Guarantees, this amount was paid by the appellants to ANZ Grindlays Bank who was bankers for the respondents. The appellants had claimed interest for a period subsequent to the actual receipt of the amount by the respondents, by invocation of Bank Guarantees and retained by them. When it was found that the appellants were not at fault, then the appellants were entitled for refund of the amount with interest thereon. The incidental charges and expenses incurred by the appellants because of invocation of Bank Guarantees by the respondents, the appellants were entitled to recover the same from the respondents.
29. In the present case, the claim of interest had arisen because of illegal invocation of Bank Guarantees so the appellants were entitled for interest and amount of expenses paid by the appellant to the Bank. This was a consequence if the issues No.1 to 7 are decided in favour of the appellants and it is found that the Bank Guarantees were wrongly invoked by the respondents. Clause 14 of onshore and offshore supply agreement and clause 14.2 of the onshore service agreement deserves to be [45]. referred which reads as under:- "14.2 Subject to the payment of Delay Liquidated Damages, neither the party liable not any of its officers, employees or agents shall in any circumstances whatsoever be liable to the other party for: (i) Any loss of profit, loss of revenue, loss of use, loss of contract or loss of goodwill; or (ii) Any indirect or consequential loss; or (iii) Loss resulting from the liability of the other party to any other person howsoever and wheresoever arising."
"14.2 Subject to the payment of Delay Liquidated Damages and any indemnity in Clause 16 neither the party liable not any of its officers, employees or agents shall in any circumstances whatsoever be liable to the other party for: (i) Any loss of profit, loss of revenue, loss of use, loss of contract or loss of goodwill; or (ii) Any indirect or consequential loss; or (iii) Loss resulting from the liability of the other party to any other person howsoever and wheresoever arising."
The aforesaid clause does not prohibit the claim of interest and Bank charges actually paid by the appellants because of invocation of Bank Guarantees the appellants were entitled for recovery of the aforesaid amount which was paid by the appellants because of illegal action of the respondents. It appears that this issue was raised for the first time before the Additional District Judge and was not raised before the Arbitral Tribunal, so the aforesaid contention could not have been considered by the Additional District Judge for the first time. [See Krishn Bhagya Jal Nigam Ltd. vs. G. Harishchandra Reddy and Anr., (2007) 2 SCC 72.para 8 and 9].. [46].
30. Apart from this, this point which was considered by the Additional District Judge in respect of applicability of clause 14.2 of the principal agreement, this was not raised by the respondents in the written statement. It was also not raised before the Additional District Judge but it appears that after closure of the arguments, in the written arguments this point was raised which was considered by the Additional District Judge. Once a point was not raised before the Tribunal, during the course of arguments before the Additional District Judge, such ground could not have been allowed by the Additional District Judge. The aforesaid clause of contract also does not contain any prohibition in awarding the claim for interest and charges for wrongful invocation of Bank Guarantees. The Apex Court in State of Rajasthan vs. Ferro Concrete Construction Pvt. Ltd., (2009) 12 SCC page 1 has held that if there was no provision in the contract for payment of interest on any of the amounts payable to the contractor, the arbitrator had the jurisdiction and authority to award the interest for all the three periods namely- pre-reference, pendente lite and future. In view of the settled position of law of the Apex Court in Ferro Concrete (supra) the Tribunal was right in awarding interest and cost to the appellants.
31. In view of the aforesaid discussions, we find that the order passed by the Additional District Judge in setting aside the award passed by the Arbitral Tribunal is not in accordance with law and deserves to be set aside and accordingly the order passed by the Additional District Judge is set aside and the award passed by the Tribunal is maintained. Considering facts of the case, there shall be no order as to cost of this appeal. (Krishn Kumar Lahoti) (Smt. Vimla Jain) Acting Chief Justice Judge psm