2013 (4) TMI 85 - HC - Companies Law

Arbitration and Conciliation - appellant declined to make any payment taking a stand that the respondent had not achieved the CBV of Rs.250 crores and additionally had also failed to maintain the Return On Investment (ROI) in the ratio 3 1 as envisaged by the agreement - respondent informed having achieved Cumulative Price Differential of more than Rs.8 crores, a figure which was above what was to be achieved under the contract - respondents served a legal notice on the appellant calling upon it to make payment in sum of Rs.1,72,40,906/-, to which appellant responded on June 20, 2005 denying any liability - dispute got referred to arbitration - Held that - The Arbitrator returned a finding of fact after considering the documentary evidence that the appellant had consented to 2 projects being postponed due to market conditions being volatile. Interpreting the contract and in particular Article 6.1 of Schedule 1 the he opined that the appellant were obliged to make monthly payments and refusal to make payments after August 2003 entitled respondent to not proceed ahead with the work. Though not so expressly stated by the learned Arbitrator, it is apparent that the agreement was read as containing reciprocal obligations with commitment of the appellant being to make a monthly payment and the reciprocal obligation of the respondent being to proceed ahead with the work. The Arbitrator, after adjusting the amounts paid, awarded the first claim i.e. commitment fee in sum of Rs.1,53,90,360/-. Rejecting the volume deficit fee because of the finding that there was consent even by the respondent to postpone 2 projects and finally give up the same due to market conditions not being favourable, Rs.1 lakh was awarded towards reimbursement of expenses. Pre-claim interest was awarded in sum of Rs.25,16,687/- and pendente lite and future interest was awarded @ 9% per annum. Cost of arbitration in sum of Rs.15 lakhs was awarded. Needless to state the counter claims were denied. The Single Judge has held that judicial interference to an award is not to sit as an Appellate Court. Where a contract falls for interpretation, the Arbitrator is the final judge to interpret the contract and findings of fact arrived at by an Arbitrator cannot be questioned save and except as being perverse or based on no evidence or ignoring relevant evidence. We refuse to deal with all the contentions urged in appeal for the reason each and every contention has been dealt with by the learned Arbitrator - appeal is dismissed but without any order as to costs.

Issues Involved:
1. Consent for postponement of two sourcing projects.
2. Achievement of Cumulative Bid Volume (CBV) of Rs. 250 crores.
3. Maintenance of Return On Investment (ROI) of 3:1.
4. Entitlement to Commitment Fee and Full Source Fee.
5. Payment obligations under reciprocal contractual terms.
6. Judicial interference with arbitral awards.

Detailed Analysis:

1. Consent for Postponement of Two Sourcing Projects:
The core issue was whether the appellant consented to the postponement of two sourcing projects (Refractories and Coke) due to volatile market conditions. The Arbitrator found that the appellant had indeed consented to the postponement, as evidenced by the correspondence exchanged between the parties. The Arbitrator concluded that the projects could not be completed because the appellant failed to make the necessary payments, which was a prerequisite for the respondent to proceed with the projects.

2. Achievement of Cumulative Bid Volume (CBV) of Rs. 250 Crores:
The agreement stipulated a CBV of Rs. 250 crores to be achieved through six sourcing projects. The Arbitrator noted that only four projects were completed, achieving a CBV of Rs. 213,15,25,902/-. The failure to achieve the full CBV was attributed to the appellant's refusal to make the required payments, which hindered the respondent from completing the remaining projects. Therefore, the Arbitrator held the appellant responsible for the shortfall in CBV.

3. Maintenance of Return On Investment (ROI) of 3:1:
The agreement required the respondent to maintain an ROI of 3:1. The Arbitrator found that the respondent had indeed maintained the required ROI, despite not achieving the CBV of Rs. 250 crores. This finding was based on the evidence that the respondent had achieved a Cumulative Price Differential of more than Rs. 8 crores, which was above the contractual requirement.

4. Entitlement to Commitment Fee and Full Source Fee:
The Arbitrator interpreted the contract to mean that the appellant was obligated to make monthly payments of the Commitment Fee and Full Source Fee, irrespective of the achievement of CBV or ROI. The refusal to make these payments after August 2003 entitled the respondent to cease further work. The Arbitrator awarded the commitment fee in the sum of Rs. 1,53,90,360/- and reimbursement of expenses in the sum of Rs. 1 lakh, along with pre-claim interest and pendente lite and future interest @ 9% per annum.

5. Payment Obligations Under Reciprocal Contractual Terms:
The Arbitrator concluded that the contract contained reciprocal obligations, where the appellant's commitment to make monthly payments was a condition for the respondent to continue its work. The appellant's failure to fulfill its payment obligations relieved the respondent from its duty to complete the remaining projects. This interpretation was upheld by the court, emphasizing that non-performance by one party justified the other party's cessation of work and entitlement to recover outstanding amounts and damages.

6. Judicial Interference with Arbitral Awards:
The court reaffirmed the principle that judicial interference with arbitral awards is limited. The Arbitrator's interpretation of the contract and findings of fact are final unless shown to be perverse or based on no evidence. The court noted that it is not an appellate body to re-evaluate evidence or reinterpret the contract. The award was upheld as the Arbitrator acted within his mandate, and no wrong legal principle was applied in interpreting the contract.

Conclusion:
The appeal was dismissed without any order as to costs. The Arbitrator's findings and award were upheld, affirming the appellant's liability for the unpaid fees and the respondent's entitlement to cease work due to non-payment. The court emphasized the limited scope of judicial review in arbitration matters, reinforcing the finality of the Arbitrator's decisions on factual and contractual interpretations.

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