Maharashtra Power Generation Company Ltd. v. Knowledge Infrastructure Systems Pvt. Ltd.

13 Mr. Sawant has submitted that the Arbitral Tribunal has erroneously interpreted Clause 5.[2] of the contract. This they have done on the premise that the contract must be interpreted firstly as per its plain language and only in the event that there is ambiguity that recourse can be taken to various interpretations.

14 Mr. Sawant has submitted that the correct interpretation of clause 5.[2] in a contract is that it applies to all concessions in force during the contractual period and it was the Claimant’s duty to take advantage of all such benefits and pass on the benefit of the exemption or concession to the Petitioner. This interpretation is in line with the ‘common sense approach’ and the purpose of the clause. He has submitted that the Supreme Court through several judgments has held that contracts should be interpreted in a manner that gives effect to the contract and makes good commercial sense. The law does not concentrate too much on individual words and looks at the commercial purpose and factual background of the contract. He has submitted that mercantile contracts must be construed in a business fashion and in a manner that would make good commercial sense.

15 Mr. Sawant has relied upon the decision of the Supreme Court in Union of India vs. D.N. Revri & Co.[1] wherein the Supreme Court held that the contract being a commercial document between the parties, it must be interpreted in such a manner as to give efficacy to the contract rather than to invalidate it. The meaning of such a contract must be gathered by adopting the common sense approach and it must not be allowed to be thwarted by a narrow, pedantic and legalistic interpretation. He has also placed reliance on the decision of the Supreme Court in MTNL vs. Canara Bank[2] wherein the Supreme Court has held that the meaning of a contract must be gathered by adopting a common sense approach and must not be allowed to be thwarted by a pedantic and legalistic interpretation.

16 Mr. Sawant has also placed reliance upon the decision of the Supreme Court in Pawan Alloys & Casting (P) Ltd. vs. U.P. SEB[3] at page 284 wherein the Supreme Court has quoted with approval from Chitty on Contracts that the law does not approach the task of construction with too nice a concentration on individual words. The mercantile contract should be construed in a business fashion and in a manner that would make good commercial sense. He has placed reliance upon Chitty on Contracts, 27th Edn., Vol. I 1994, and in particular paragraph 45 regarding contracts in standard form and paragraph 12.013 regarding onerous or unusual terms. He has also referred to paragraph 12.040 regarding intention of parties wherein the Author has commented that one must consider the meaning of the words used, not what one may guess to be the intention of parties. Further, the law does not approach the task of construction with too nice a concentration on individual words with regard to dealing with mercantile Contracts, the author has stated that the commercial documents ‘must be constructed in a business fashion’ and ‘there must be ascribed to the words a meaning that would make good commercial sense’.

17 Mr. Sawant has also placed reliance upon the decision of the Supreme Court in Rajasthan State Industrial Development and Investment Corporation vs. Diamond and Gem Development Corporation Ltd.[4] wherein the Supreme Court has relied upon its prior decision in DLF Universal Ltd. vs. Town and Country Planning Development[5] wherein it was held that it is a settled principle in law that a contract is interpreted according to its purpose. The purpose of a contract is the interests, objectives, values, policy that the contract is designated to actualize.

Consistent with the character of purposive interpretation, the Court is required to determine the ultimate purpose of a contract primarily by the joint intent of the parties at the time the contract so formed.

18 Mr. Sawant has also relied upon the decision of the Supreme Court in Southern Electricity Supply Co. of Orissa Ltd. vs. Seetaram Rice Mill[6] wherein the Supreme Court has held that the contractual documents must be interpreted by Judges on the common sense principle.

19 Mr. Sawant has thereafter made submissions on the Petitioner’s entitled to recover dues under the previous contract. This claim related to the recoveries made by the Petitioner relating to supplies under an earlier contract i.e. Old Khaperkheda Contract from the amounts payable under the present Chandrapur TPS Contract. He has submitted that the Arbitral Tribunal has erroneously held that without a notice of demand and/or notice to set off and/or notice to set off and/or in the absence of pleading, the Petitioner is not permitted to set off the amount under the present Chandrapur Contract. Mr. Sawant has placed reliance upon clause 34.0 of the contract wherein it is stated that ‘The Purchaser shall have the right to set off any amounts owed by the Seller to the Purchaser, against amounts owed by Purchaser to the Seller ….” (emphasis added). He has submitted that the language of the Clause 34 i.e. “any amounts” is very wide and will include amounts under an earlier contract. He has submitted that the amount is certain and crystallized and hence the Petitioner is entitled to recover the same. In this connection Mr. Sawant has relied upon the following Supreme Court Judgments: i) Union of India v. Raman Iron Foundry, (2 Judges); ii) H.M. Kamaluddin Ansari & Co. v. Union of India, (3 Judges) over-ruling Raman Iron Foundry – paras 21, 24, 27, 28, 31; iii) Gangotri Enterprises Ltd. v. Union of India, (2 Judges) follows Raman Iron Foundry – without noticing that it has been over-ruled by a 3-Judge Bench in H.M. Kamaluddin Ansari; and iv) State of Gujarat v. Amber Builders, (2 Judges) paras 19 to 21 – holds that Gangotri Enterprises is per incuriam because it relies upon Raman Iron Foundry which has been specifically over-ruled by a 3-Judge Bench in H.M. Kamaluddin Ansari.

20 Mr. Sawant has submitted that the Petitioner being a Public Sector Undertaking is considered a State according to Article 12 of the Constitution of India. As the funds involved in the contracts in question are public money, the terms of the contracts have been designated to protect the public interest and ensure that the work is carried out with care and diligence.

21 Mr. Sawant has thereafter made submissions with regard issues Nos.[2] to 5 being beyond the scope of reference. He has submitted that the Claimant’s entitlement is limited to Claim No.1, as per the High Court’s order dated 30.10.2018. Moreover, the Counsel representing the Claimant made a clear statement that the Claimant’s claim is restricted to the 2% difference that had been deducted by the Petitioner. He has referred to the statement made by the Counsel on behalf of the Claimant’s recorded in the said order. He has submitted that the statement was made by the Claimant’s Counsel to overcome the Respondent’s objection about non-compliance with the condition precedent of first referring the disputes to the Chief Engineer. He has referred to the findings of this Court in paragraph 8 on that issue.

22 Mr. Sawant has submitted that the Claimant’s communication dated 14.03.2014 to the Chief Engineer and his reply dated 19.03.2014 are only in respect of the 2% claim for BCD i.e. Claim No.1 in the Arbitration and this Court has on that basis held that the pre-condition (which is otherwise required to be strictly followed) has been met. He has submitted that the praecipe was filed by the Claimant for speaking to the minutes of the said order to modify the statement made by its Counsel, which has also been rejected by this Court. He has accordingly submitted that Issue Nos.[2] to 5 have been erroneously held by the Arbitral Tribunal in the affirmative and the same needs to be set aside.

23 Mr. Sawant has thereafter made submissions with regard to Issue No.2 pertaining to deduction of excess quantity supplied at Chandrapur TPS in claimant. He has submitted that the Arbitral Tribunal has erroneously held Issue No.2 pertaining to deduction of excess quantity supplied at Chandrapur TPS in favour of the Respondent/Original Claimant. He has placed reliance upon clauses 8.[7] and 8.11 of Schedule- A of the Chandrapur Contract, which were incorporated into the Khaparkheda Amendment Contract. These clauses state the Petitioner is not liable to pay for excess quantity beyond the contractual quantity, considering a tolerance of +2% delivered at the TPS. He has submitted that it is crucial that the Claimant supplies coal in the required quantities as specified in the contract to ensure proper electricity generation, as stipulated in clause 2.0 (Scope of Work) of the contract.

24 Mr. Sawant has referred to the communications wherein he has submitted that the stance of the Petitioner is correct and in accordance with the terms of the contract viz, communications dated 02.09.2014, 12.09.2014, 09.10.2014, 26.11.2014 and 10.09.2015. He has submitted that Amendment No.4 clearly states that “The total quantity for Chandrapur TPS after diversion of 80,000 MT quantity to Khaperkheda TPS is 8,76,500 MT”. He has submitted that the Arbitral Tribunal ought to have considered the said clause 8.[7] of Schedule-A while deciding the Issue No.2, which states that “The seller shall note that if any excess quantity beyond contractual quantity considering tolerance of +2% is received at the TPS: the payment for such quantity shall not be made”. He has submitted that the Arbitral Tribunal ought to have considered that clause 8.[7] of Schedule-A is an express prohibition in the contract and that if the claim is granted then the same will be contrary to the express prohibition in the contract. He has submitted that on the same principles of ‘business-like interpretation’, ‘common sense interpretation’ and ‘purposive interpretation’ of the contract (as per the supreme Court decisions already quoted above), it is clear that the tolerance levels of +/- 2% is to be applied separately qua each TPS.

25 Mr. Sawant has submitted that if the Claimant’s argument on interpretation of clauses 8.[7] and 8.11 is to be accepted, then it would lead to an absurd situation viz. that the Claimant would be free to deliver the entire quantity at the original TPS location (and zero quantity at the new TPS location) and still claim that there is no excess delivery at all. Such hyper-technical interpretation not only renders clause 8.[7] useless and otiose, but it also flouts business common sense and militates against the very purpose and intent of the clause. Despite a diversion of quantity as contractually permissible, the Claimant will be free to deliver the entire quantity at the original TPS location (and zero quantity at the new TPS location). Therefore, on basis of this ground also, the award passed in Issue No.2 needs to be set aside.

26 Mr. Sawant has submitted it is not disputed that the quanity supplied by the Claimant at this TPS was in excess of the 2% tolerance limit – if the Chandrapur TPS quantity is taken as the reduced quantity of 8,76,500 MT. Therefore, on the above mentioned grounds, the Arbitral Tribunal ought not to have allowed the present claim in favour of the Claimant.

27 Mr. Sawant has made submissions on issue No.3 - losses on account of wrongful deduction on Liquidated Damages on account of alleged short supply to Khaparkheda TPS (diverted quantity). He has submitted that the Arbitral Tribunal has erroneously held that the deduction is illegal as the Petitioner has not produced any proof of the damages incurred on its part and the toleration limit of +/-2% should have been calculated on the total quantity of 9,56,500 MTs as per the Chandrapur Contract and not independently on the standalone basis of the diverted quantity of 80,000 MTs. He has reiterated his submissions on the interpretation of clauses 8.[7] and 8.11 above. He has submitted that the amount of Rs.1,12,16,141/- was correctly withheld as per the terms of the contract. He has submitted under clause 15.[3] of the Contract it states that “The parties to the contract agree that the liquidated damages payable as per clause 15 of this Section II are a fair and reasonable pre-estimate of the damages likely to be suffered by the Purchaser...”

28 Mr. Sawant has placed reliance upon the decision of the Supreme Court in Kailash Nath Associates Vs. Delhi Development Authority and Another.[7] where the Supreme Court has placed reliance upon its prior decision in ONGC Ltd. Vs. Saw Pipes Ltd.8, where it was held that if compensation named in a contract for such breach is a genuine pre-estimate of loss which the parties knew when they made contract to be likely to result from the breach of it, there is no question of proving such loss. He has submitted that the Arbitral Tribunal has erred in 7 (2015) 4 Supreme Court Cases 136 8 SCC pp.740-43 paras 64 & 67-68. holding that liquidated damages has not been proved by leading evidence.

29 Mr. Sawant has made submissions with regard to Issue No.4 short payment under Contract No.2041 dated 30.08.2023. He has submitted that reconciliation proceedings are not yet concluded as the Claimant have made various alterations in view of the disputed amount which is yet to be identified. The Respondent denies that an amount of Rs.21,76,555/- is due and payable under the Bhusawal Contract.

30 Mr. Sawant has in respect of Issue No.7 – Limitation, submitted that the cause of action first arose on 19.03.2014, when the Petitioner informed the Claimant that the Petitioner would be recovering the said amounts from the payments against the Contract. Therefore, on the basis of the same, the Arbitration reference commenced by arbitration notice dated 31.08.2017 which is barred by Limitation and therefore on this ground also all the claims of the Claimant needs to be set aside. He has submitted that alternatively, all deductions/recoveries made three years prior to the date when the arbitration notice dated 31.08.2017 was received by the Respondent are clearly barred by limitation.

31 Mr. Sawant has accordingly submitted that the claims as raised in the Statement of Claim were liable to be dismissed by the Arbitral Tribunal being devoid of any merits, with compensatory costs. The Award passed by the Arbitral Tribunal not having done so, needs to be set aside.

32 Mr. Vikram Nankani, learned Senior Counsel appearing for the Respondent has made counter submissions. He has referred to certain Clauses in the contract between the parties. In particular he has referred to Clause 4.[1] in Section 1 containing instructions to bidders which contains provisions relating to the Bid Price under Bid Currency. He has referred to the relevant clauses viz. Clauses 4.2, 4.4, 4.[6] and 4.[8] of the contract. Thereafter, he has referred to Clauses 5.1, 5.[2] and 5.[3] of the Contract. He has submitted that the Tender proceeded on the basis that no concessional Customs Duty is applicable on coal, as provided in Clause 5.[3] in Section II containing the general terms and conditions of the Contract. He has thereafter referred to Clauses 8.[1] and 8.12 of Section II, Terms and Conditions of the Contracts. Under Clause 8.1, the Respondent had to take responsibility of maintaining the delivery schedule, if needed, by rescheduling deliveries through a different discharge port. Further, under Clause 8.12 of the Contract the Respondent reserved to itself the right to change the port of delivery at any time.

33 Mr. Nankani has thereafter referred to the payment terms in Clause 12.[1] of the Contract which provides that customs duty shall be paid on actuals subject to proof of documentary evidence of payment by the supplier (Respondent).

34 Mr. Nankani has submitted that having regard to the terms and conditions of the Contract/Tender and in particular the Clauses referred to above, the Petitioner while evaluating the bid made by the Respondent, added 2% towards BCD in terms of Clause 20 of Section-1 containing the instruction to Bidders. Mr. Nankani has submitted that consequently, when the Petitioner and the Respondent executed the Contract, Schedule B thereof expressly provided for BCD calculated @2% of the landed value (also the assessable value under the provisions of the Customs Act, 1962) calculated @101% of the CIF (CIF + 1%). He has referred to the relevant portion of Schedule-B in respect of the price break up relating to 2% BCD.

35 Mr. Nankani has submitted that the Petitioner’s challenge to the impugned Award and interim order are based on the premise that the Arbitral Tribunal had incorrectly interpreted the terms of the Supply Contracts. He has submitted that there are a plethora of judgments which have defined the limited contours or the restricted remit of a Court when a Petition is adjudicated under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). Regarding the question of interpretation of contracts, it is settled law that the Arbitrator is empowered to interpret the contract. This means that no Court can interpret the contract for the Arbitrator. The interpretation and construction of a contract is therefore primarily for the Arbitrator to decide.

36 Mr. Nankani has submitted that there is no ground made out by the Petitioner of patent illegality. The Award is not against public policy. The Award is also not perverse. The Award is a reasoned speaking award. He has submitted that the Arbitral Tribunal is a sole master of the quality and quantity of evidence and the view taken by the Arbitral Tribunal is the correct view. He has submitted that where there are two views possible, if the view preferred by the Arbitral Tribunal is possible, no interference can be called for under Section 34 of the Arbitration Act and it is not for the Court to substitute its view. He has placed reliance upon the judgments of the Supreme Court in Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India[9]; Delhi Airport Metro Express Pvt. Ltd. vs. Delhi Metro Rail Corporation Ltd.10 and UHL Power Company Ltd. vs. State of Himachal Pradesh11.

37 Mr. Nankani has thereafter made submissions on the aforementioned issues which the Petitioner has addressed in challenging the impugned Award. On the issue of BCD concessions not being availed by the Respondent, he has submitted that the Arbitral Tribunal has correctly interpreted Clause 5.[2] of the Contract that it applies only to BCD concession and not CVD concession. He has submitted that a plain reading of Clause 5.[1] shows that the parties distinguished between BCD and CVD. This distinction has also been made by the Supreme Court in Hyderabad Industries Limited vs. Union of India12 where the Supreme Court has held that CVD or additional duty is levied under Section 3(1) of the Customs Tariff Act, 1975 and Section 12 of the Customs Act, 1962 is not the charging section therefor.

38 Mr. Nankani has submitted that Clause 5.[2] of the Contract refers only to BCD and does not apply to CVD. This is made further clear by reference to ‘Basic Concessional Customs Duty’ meaning thereby that Clause 5.[2] applies only to changes in BCD after entering into the contract. Consequently, it follows that, no change in any other taxes including CVD, covered by Clause 5.[1] would be covered by Clause 5.2.

39 Mr. Nankani has submitted that the Circular dated 03.10.2013 is a mere clarification and that too, with regard to the position in relation to CVD. The Circular may have been issued during the contractual period, but since Clause 5.[2] does not apply to or cover CVD, the same is of no relevance. He has submitted that Section 151A of the Customs Act provides for the Central Board of Excise & Customs (now known as ‘Central Board of Indirect Taxes & Customs’) may issue a Circular to bring about uniformity in matters of classification and levy of duty. The Circular is executive and not legislative in nature. It has been held in large number of cases including in Jayant Dalal vs. Commissioner13 that the said Circular is binding only on the Department and not on the Assessee. Being clarificatory in nature, the same only confirms the law as it existed at the onset.

40 Mr. Nankani has submitted at the beginning of the contractual period, coal attracted 3 rates of basic customs duty. 10% as per Customs Tariff, 2% as per Notification 12/2013 Cus. and Nil as per Notification 46/2011 as amended on 31.12.2012. There was no change in the rate of BCD after the contractual period started to run. Hence, Clause 5.[2] of the Contract is not attracted. The parties chose to apply the concessional rate of the basic customs duty @ 2%. There has been no change in the rate of BCD during the contractual period. He has submitted that the parties chose not to lead oral evidence. Having chosen not to lead oral evidence, the Petitioner cannot reply upon or call back the said Circular dated 03.10.2013 which was not in existence on the date of execution of the contract.

41 Mr. Nankani has submitted that the Petitioner has made submissions on the contract requiring to be interpreted in a business-like, purposive and common-sense manner. He has submitted that the Arbitral Tribunal has correctly held that since there were no ambiguity or absurdity in the literal language of Clause 5.2, there was no requirement to do a purposive, business-like or common-sense interpretation of the said Clause. The Arbitral Tribunal has interpreted Clause 5.[2] of the Contracts as per plain language and in holding that the intent of the parties manifested from the plain language of Clause 5.[2] itself, the plain language of the said Clause could not be defeated by interpreting the same in any other way. The Arbitral Tribunal has rightly opined that the deduction towards BCD made by the Petitioner was illegal and wrongful and that the Respondent was entitled to the same.

42 Mr. Nankani has submitted that there can be no question of interpreting Clause 5.[2] of the contract in a commercial sense as the Respondent had submitted its bid and made arrangements to discharge its duties under the contract on the basis of the terms of the documents. Interpreting Clause 5.[2] in such a manner would have meant for the Respondent to midway change the arrangements put in place by the Petitioner, for complying with its contractual obligations.

43 Mr. Nankani has thereafter addressed the issues involving fraud causing the disputes to become non-arbitrable which Mr. Sawant has in oral arguments not addressed though this was one of the issues raised before the Arbitral Tribunal. He has submitted that a dispute being arbitrable is within the domain of the Arbitral Tribunal to determine. The Arbitral Tribunal has correctly determined this issue by considering that the claim of non-arbitrability was on the ground of the issue involving fraud had been based on the order of the Directorate of Revenue Intelligence (“DRI”), which order was set aside by CESTAT and the Appeal preferred to the High Court was also dismissed. Since the Appeal filed by the Petitioner against the order of CESTAT was then referred to the Supreme Court and was pending, the Arbitral Tribunal rightly did not consider the DRI order.

44 Mr. Nankani has submitted that the Arbitral Tribunal had correctly decided the issue of obtaining AIFTA Certificate (Form A-1) upon a reading of Notification No.46/2011 and which provided that it has to be obtained pre-shipment. Moreover, since the procedure and machinery as per ASEAN Trade Rules for obtaining Form A-1 required the exporter to apply for the Form A-1 pre-shipment, it was not possible to make this happen midway.

45 Mr. Nankani has addressed the other issue raised by Mr. Sawant during arguments and which relates to Claim Nos.[2] to 5 being beyond the scope of reference. He has submitted that the Arbitral Tribunal has correctly interpreted that Section 11 of the Arbitration Act does not require the Chief Justice or his designate to identify the disputes or refer them to the Arbitral Tribunal for adjudication. Hence, the order dated 30.10.2018 passed in the Section 11 Application referring the disputes to arbitration could not have restricted the Respondent from making its claims as per its notice of invocation dated 31.08.2017. The operative part of the said order dated 30th October, 2018 did not exclude any claims. The Arbitral Tribunal has also appreciated that since the Chief Engineer (FMC) had already rejected the Respondent’s Claim Nos.[2] and 3, there could be no question of the Respondent again going to the same authority for adjudication of these claims. With regard to Claim No.4, the Arbitral Tribunal has found that there was no dispute as to the reconciliation sheet jointly signed by the parties showing the amounts to be due and payable. Insofar as Claim No.5 is concerned, the same was not pressed by the Respondent.

46 Mr. Nankani has submitted that the Arbitral Tribunal has rightly held that these claims are not beyond the scope of reference and jurisdiction of the Arbitral Tribunal. He has submitted that by the said order dated 30.10.2018, this Court had kept all rights and contentions of the parties open, except the question of jurisdiction of the Arbitrator. The Petitioner’s contention that these claims are beyond the scope of reference overlooks paragraph 12 of the said order dated 30.10.2018 whereby ‘all disputes’ between the parties have been referred to Arbitration by the Arbitral Tribunal. He has submitted that the reliance placed by the Petitioner on the praecipe filed by the Respondent for speaking to the minutes of order is misplaced inasmuch as no orders were passed thereon. This is in view of this Court having passed the said order dated 30.10.2018 wherein ‘all disputes’ have been referred to arbitration.

47 Mr. Nankani has thereafter addressed the issue of diverted quantities from Chandrapur TPS to Khaparkheda TPS. He has submitted that the Arbitral Tribunal has correctly appreciated Clause 8.[7] of the contract which uses the expression ‘ordered quantity/contracted quantity’ which meant the tolerance of +/-2% against contracted quantity, if fully ordered or against the ordered quantity. The Arbitral Tribunal has also rightly considered that the amendment of the contract required the parties to follow the procedure under Clause 35 of the Contract and no independent contract was entered into between the parties for the purpose of diversion of quantity. The Arbitral Tribunal has accordingly answered Issue No.2 in the affirmative and allowed the claim of the Respondent in relation to the diverted quantities from Chandrapur TPS.

48 Mr. Nankani has submitted that the Petitioner had deducted sum of Rs.1,12,16,141/- on the ground of alleged shortage in excess of - 2% at Khaparkheda. The Petitioner had directed the Respondent to divert 80,000 MTs from Chandrapur Contract to Khaparkheda. As against 80,000 MTs, the Respondent actually delivered 58,297 MTs. Applying +/-2% tolerance limit under Clause 8.[7] of the Chandrapur Contract to the quantity of 80,000 MT (1600 MT), the Petitioner alleged that there was shortage beyond 1600 MTs, and non-performance of the entire contract or part thereof and that the Petitioner was entitled to deduct liquidated damages under Clause 15.[1] of the Chandrapur Contract. He has submitted that this calculation of +/-2% with reference to 80,000 MT is erroneous. The tolerance limit of +/-2% had to be calculated on the total quantity of 9,56,500 as per the Chandrapur Contract. The tolerance limit cannot independently or on stand-alone basis, be applied to diverted quantity of 80,000 MT since it is part of the ordered quantity under the Chandrapur Contract. There is undisputedly no separate contract for 80,000 MT diverted to Khaparkheda. He has accordingly submitted that there is no merit to the challenge of the Petitioner to the Arbitral Award on this issue.

49 Mr. Nankani has thereafter addressed the issue of liquidated damages. He has submitted that the Arbitral Tribunal has held that since there was no shortfall more than permissible limits under the Supply Contracts, the deductions effected by the Petitioner by way of Liquidated Damages were impermissible. The Arbitral Tribunal had noted that it was for the Petitioner to prove damages suffered. However no evidence was produced in this regard. A finding was arrived at that damage/loss caused is a sine qua non for the applicability of Section 74 of the Contract Act and failure to prove damages would lead to the conclusion that the Petitioner had not suffered any loss. He has submitted that without prejudice to the submissions on their being no shortfall in quantity supplied more than permissible limits under the Supply Contracts, the deduction of Rs.1.12 crores by way of liquidated damages under Clause 15.[1] of the Chandrapur Contract, has not been proved by leading any evidence. It is settled law that the Petitioner needs to prove loss caused by the alleged breach of short supply beyond the permissible limits of Clause 8.[7] of the Chandrapur Contract. He submitted that the decision of the Supreme Court in Kailash Nath Associates vs. DDA (Supra) and MTNL vs. Tata Communications Ltd.14 is in support of this view as it considers Section 74 of the Contract Act in its correct perspective and not in the manner contended by the Petitioner.

50 Mr. Nankani has submitted that the deduction of liquidated damages was made from the payments due under the Chandrapur Contract. The supplies to Khaparkheda TPS were diverted from Chandrapur Contract as per the agreed terms and hence, the quantity supplied to Chandrapur and Khaparkheda TPS ought to be taken together when applying Clause 8.[7] of the Supply Contracts. When taken together, there was no short supply to Khaparkheda TPS as alleged by the Petitioner. Accordingly, the Petitioner’s contentions that they were entitled to deduct liquidated damages for alleged short supply to Khaparkheda TPS is misconceived.

51 Mr. Nankani has then made submissions on the issue of Limitation. He has submitted that the Arbitral Tribunal had noted that part payments were made by the Petitioner to the Respondent between October and November, 2015 and thereafter, the Chief Engineer (FMC) of the Petitioner had rejected the Respondent’s claims vide letters dated 24.07.2015 and 10.09.2015. In the Arbitral Tribunal’s view, the Petitioner was not bound to make payment of the balance amount to the

Respondent until the balance payments could have been sought only after stipulated factors were determined and adjustments were carried out, which happened only upon joint reconciliation of accounts which was completed by the parties on 24.05.2017 in relation to Bhusawal Contract and on 22.03.2017 in relation to Chandrapur Contract. Hence, the Arbitral Tribunal has rightly held that the claims of the Respondent were within limitation.

52 Mr. Nankani has submitted that the notice of arbitration is dated 31.08.2017 and in view of part payments made by the Petitioner to the Respondent between October and November, 2015, these factors have been rightly taken into consideration by the Arbitral Tribunal including as aforementioned the Joint Reconciliation of Accounts completed by the parties on 24.05.2017 in case of Bhusawal Contract and on 22.03.2017 in respect of the Chandrapur Contract in which the amounts deducted (and now claimed) were also finalized and net amount post adjustments payable to the Respondent have been mentioned. Further, the Petitioner has accepted the Respondent’s claim No.4 i.e. short payment under BTPS Contract for Rs.21,76,555/- and paid the same to the Respondent on 26.08.2021. Hence, there is no merit in the challenge to the Arbitral Award on the issue of limitation.

53 Mr. Nankani has accordingly submitted that there is no valid ground of challenge under Section 34 of the Arbitration Act in the present Petition and accordingly the Petition be dismissed with costs.

54 Having considered the submissions, regarding issue No.1 viz. BCD concession not having been availed of by the Respondent, the Arbitral Tribunal has interpreted Clause 5.[2] of the Contract as per its plain language and upon such interpretation arrived at a finding that it is apparent from the said Clause read with Clause 5.[1] of the Contract that the intent of the parties was to consider BCD distinct from CVD in the Supply Contracts. The said Clause 5.[2] is applicable only to BCD concession and not to CVD concession. The Arbitral Tribunal has also considered the notifications which were issued prior to the Supply Contracts and found that no concessional Customs Duty applicable on coal. Clause 5.[2] of the Contract was made to cover import of coal under Notification No.12/2012 and if concessions became available on BCD during the period of the contract to such imports, they would be applicable. The Petitioner had intentionally claimed the BCD of 2% under Notification No.12/2012 as the CVD under the said Notification was also 2%. Thus, making the total duty of 4%. This against the Notification No.46/2011 which was for ASEAN countries where BCD was 0% and the corresponding CVD being 6% making a total duty of 6%. There was no scope for further concession in BCD under this notification. The price schedule in the contract had also proceeded on the basis of 2% BCD and 2% CVD.

55 Further, the Circular dated 3rd October, 2013 relied upon by the Petitioner has been held by the Arbitral Tribunal to be merely clarificatory and that too with regard to the position in relation to CVD. In view of the aforementioned interpretation of the Arbitral Tribunal on Clause 5.[2] and that CVD not being covered by the said Clause, it was irrelevant as to when the said Circular had been issued i.e. prior to or during the contractual period. In any event the Arbitral Tribunal had noted that the parties chose not to lead oral evidence and having done so, there was nothing on record to show as to when the said Circular dated 03.10.2013 was issued. There is much merit in the submission of the Respondent that the Petitioner cannot now call back the Circular which according to the Petitioner was not in existence on the date of the execution of the contract.

56 It is settled law that the Arbitral Tribunal is empowered to interpret the contract and the Court cannot interpret contracts for the Arbitrator. The interpretation and construction of a contract is primarily for the Arbitrator. The Arbitrator’s view on the interpretation of the Clauses of the contract, is a possible view and hence calls for no interference under Section 34 of the Arbitration and Conciliation Act,

1996. Thus, in my view there is no merit in the challenge to the finding of the Arbitral Tribunal with regard to issue No.1. The Arbitral Tribunal having interpreted the aforementioned clauses which this Court finds is a possible interpretation cannot be a ground of challenge under Section 34 of the Arbitration Act.

57 The decisions of the Supreme Court relied upon by the Respondent namely Ssangyong Engineering & Construction Co. Ltd. (supra); Delhi Airport Metro Express Pvt. Ltd. (supra) and UHL Power Company Ltd. (supra) are apposite.

58 With regard to the Petitioner’s contention of Issue Nos.[2] to 5 being beyond this Court’s reference and thus, not arbitrable, I do not find any merit in this contention. This is in view of the order dated 30.10.2018 not placing any restriction upon the Respondent making its claims as per Notice of Invocation dated 31.10.2017 and this is borne out from the operative part of the said order. The Arbitral Tribunal has in my view correctly interpreted Section 11 of the Arbitration and Conciliation Act, 1996, as not requiring the Chief Justice or his designate to identify the disputes whilst referred them to the Arbitral Tribunal for adjudication. The Arbitral Tribunal has considered these Claim Nos.[2] to 5 to be arbitrable. The Arbitral Tribunal has appreciated that the Chief Engineer (FMC) has already rejected the Respondent’s Claim Nos.[2] and 3 and hence there could be no question of the Respondent again going to the same Authority for adjudication of its claim. Further, with regard to Claim No.4, there was no dispute as the reconciliation sheet was jointly signed by the parties showing the amounts to be due and payable. Claim No.5 was not pressed by the Respondent. Hence, I do not find any error on the Arbitral Tribunal’s part in adjudicating these claims. The Respondent had also addressed these claims on merits and the Arbitral Tribunal has after considering the Respondent’s defence on these claims arrived at the finding in the impugned award.

59 I shall now consider Issue No.2 – deduction of excess quantity supplied at Chandrapur TPS decided by the Arbitral Tribunal in favour of the Respondent. It is the Petitioner’s submission that they had taken action in view of Clauses 8.[7] and 8.11 of Schedule A of the Chandrapur Contract incorporated in the Khaparkheda Amendment Contract which specifically stated that the Petitioner is not liable to pay for excess quantity beyond the contractual quantity, considering the tolerance of +/- 2% delivered at TPS. It is the Petitioner’s contention that the Respondent had not supplied coal as per specific requirement at Khaparkheda TPS and hence, the Petitioner made deductions under Clause 8.[7] of the Chandrapur Contract.

60 The Arbitral Tribunal in considering this issue has interpreted Clauses 8.[7] to 8.11 of the Contract. The Arbitral Tribunal has considered that Clause 8.11 of the Chandrapur Contract only permitted the Petitioner to divert rakes from designated TPS to another TPS as per requirement. The Respondent only had the right to have coal diverted to the Khaperkheda TPS. The Arbitral Tribunal by interpreting Clause 8.[7] has considered the expression ‘ordered quantity/contracted quantity’ which meant the tolerance of +/ -2% was against contracted quantity if fully ordered or against the ordered quantity. The parties were required to follow the procedure under Clause 35 of the Contract and no independent contract was entered into between the parties for the purpose of diversion of quantity.

61 The Arbitral Tribunal in my view has correctly accepted the contention of the Respondent that the tolerance limit of +/- 2% under Clause 8.[7] of the contract cannot independently or on stand alone be applied to the diverted quantity of 80,000 MT since it is a part of the ordered quantity and the tolerance limit of +/-2% necessarily would have to be calculated on the total quantity of coal supplied to the Chandrapur TPS. There is no separate contract for 80,000 MT diverted to Khaperkheda TPS. Thus, the Respondent had made the related deduction under Clause 8.[7] of the Chandrapur Contract on the basis that there was no shortage of coal supplied to Khaperkheda TPS.

62 In any event the Arbitral Tribunal’s interpretation of Clauses 8.[7] and 8.11 of the Contract is a possible interpretation which calls for no interference by this Court under Section 34 of the Arbitration Act. The aforementioned decisions relied upon the Respondent are apposite in this context as well.

63 Now coming to the issue of Liquidated Damages, the Arbitral Tribunal has held that this issue will no longer arise in view of the finding there was no shortfall of supply of coal more than permissible limits under the supply contracts. Hence, the deduction effected by the Petitioner by way of liquidated damages were impermissible. I find no error in the Arbitral Tribunal holding that presuming that this issue was to be considered the Petitioner has failed to prove damages suffered as no evidence was produced in this regard. The deduction of Rs.1.12 crores by way of liquidated damages is under Clause 15.[1] of the Chandrapur Contract. There is much merit in the contention on behalf of the Respondent that the Petitioner needs to prove loss caused by alleged breach of short supply beyond permissible limits of Clause 8.[7] of the Chandrapur Contract. No loss has been proved by the Petitioner. The finding of the Arbitral Tribunal that damage/loss caused is a sine qua non for the applicability of Section 74 of the Contract Act and in view of there being no proof of any damage / loss, the Petitioner had not suffered any loss cannot be faulted. Further, considering that there is no breach of the Contract the decision relied upon by the Petitioner viz. Kailash Nath (Supra) which relies upon ONGC (Supra) is in applicable. In any event these decisions also consider Section 74 of the Contract Act and have held that under this Section the expression” “Whether or not actual damage or loss is proved to have been caused thereby” means that where it is possible to prove actual damage or loss, such proof is not dispensed with.

64 With regard to the issue of limitation, in my view the Arbitral Tribunal has upon proper appreciation of the material on record rightly held that the claims of the Respondent were within limitation. The Arbitral Tribunal has considered there were part payments made by the Petitioner to the Respondent between October and November, 2015. Thereafter the Chief Engineer (FMC) of the Petitioner had rejected the Respondent’s claim vide letters dated 24.07.2015 and 10.09.2015. The balance payment could have been sought only after joint reconciliation of accounts which were completed by the parties on 24.05.2017 in relation to the Bhusawal Contract and on 22.03.2017 in relation to the Chandrapur Contract. The Notice invoking the arbitration has been issued by the Respondent/Original Claimant on 31.08.2017. Hence I find no merit in the challenge of the Petitioner to the findings of the Arbitral Tribunal on the issue of limitation. This apart from the settled law that a Court whilst considering a Petition filed under Section 34 of the Arbitration Act cannot re-appreciate evidence.

65 Apart from these challenges to the impugned award which have been raised in written and oral arguments on behalf of the Petitioner, there are no other challenges raised to the impugned Award. Further, I do not find any error in the impugned order dated 20.07.2020 by which the Arbitral Tribunal had rejected the submission of the Petitioner that the dispute before the Arbitral Tribunal involves a case of serious fraud and thus not arbitrable. The Arbitral Tribunal had upon appreciation of the material on record arrived at a finding in the impugned order dated 20th July, 2020 that the dispute is purely a contractual dispute and the allegation in the defence taken at the highest of simple fraud and not of serious allegation of fraud. The Arbitral Tribunal has accordingly held that the case is arbitrable and such a finding cannot be faulted by this Court under Section 34 of the Arbitration and Conciliation Act, 1996.

66 Accordingly I do not find any grounds raised in the Arbitration Petition which fall within the acceptable grounds of challenge to an award under Section 34 of the Arbitration and Conciliation Act,

1996.

67 The Arbitration Petition is devoid of any merit and is accordingly dismissed. There shall be no order as to costs. ( R.I. CHAGLA, J. )