2019 (4) TMI 1927 - HC - Indian Laws

Validity of Arbitral Award - applicability of the clauses 9.1 to 9.3 of the Supply Agreement - whether the Respondent had issued any guarantee on generation of energy during the contractual period or not? - HELD THAT - The Arbitral Tribunal rendered findings that the Respondent had withheld or suppressed the material records and information and thereby kept the Claimant in dark on these aspects which were very material for the Claimant to decide upon about the viability of the project. The Arbitral Tribunal considered the Cash Flow Statement and the evidence of RW.1 on that aspect and rendered findings that the said witness had admitted that the Claimant was not informed that the Cash Flow Statement was only a sample cash flow and thus it was clear that the Respondent was fully aware that the Cash Flow contained several assumptions which were not communicated to the Claimant. The Arbitral Tribunal rendered a finding that the Cash Flow Statement and the Revenue Calculations could not be taken as representing true and correct situation/facts or representing a probability of generation if not actual generation. Such misrepresentation was purposely made by the Respondent knowing that such representation was not true only with a view to induce the Claimant to enter into the Supply Agreement. It is also held by the Arbitral Tribunal that such misrepresentation concealment and suppression of facts were made by the Respondent knowing that they were not true with an intention to induce the Claimant to enter into the Supply Agreement - Arbitral Tribunal summarised the reasons for arriving at the conclusions that the Respondent had not made negligent misrepresentations but also committed fraud on the Claimant. It is proved that the misrepresentation made by the Respondent was fraudulent. The Arbitral Tribunal also rendered findings in 39.11(xii) that various necessary information and documents required for the purpose of wind energy generation were purposely not made available by the Respondent to the Claimant. The Arbitral Tribunal also considered the submissions made by the parties based on Explanation to Section 17 of the Indian Contract Act and rejected the contention of the Respondent that the Respondent was not duty bound to disclose every thing to the Claimant and held that the present case was one of active representations by the Respondent and thus would clearly fall under Section 17 i.e. Fraud as defined under the said provision. The Arbitral Tribunal interpreted Clause 9.2 also which provided that the generation estimate had been carried out using Wasp and Windpro Software and the calculations were based on the wind data for the period September 2005 to August 2006 within the applicable reference mast installed by the Supplier in close proximity to the site and the site specific power curve of the wind turbine. It is held that the Respondent was bound to disclose necessary facts as stated by it in the Estimated Generation contained in the Supply Agreement. The Arbitral Tribunal held that the contract is a commercial contract. The Respondent was an experienced expert and claimed to be the world leader in the field of wind energy and had full knowledge of the wind data of Gude Panchgani; whereas the Claimant was entering the wind energy business and had no knowledge about the wind data pertaining to the Gude Panchgani site which was very very necessary. Both the parties were not equals in the field of wind energy. It was the duty of the Respondent to bring to the notice of the Claimant all the facts that went in determining the proposed estimation of energy. The Claimant was vocal and was demanding the necessary information; whereas the Respondent declined to furnish the same deliberately. The Arbitral Tribunal after considering the evidence of both the parties also held that the transactions as evidenced by the Supply Agreement was not something which could be understood on inspection of the site as it was based upon wind data of the past period as represented by the Respondent. The Arbitral Tribunal accordingly held that Illustration (a) to Explanation to Section 17 of the Indian Contract Act had no application to the instant case as the Respondent was bound to explain all the facts relevant to the subject matter of the contract - In paragraph 42 of the majority Award the ArbitralTribunal held that the Supply Agreement was vitiated by fraud and misrepresentation committed by the Respondent on the Claimant with an intent to induce the Claimant to enter into the Supply Agreement. The case of the Claimant thus falls under Sections 17 18 and 19 of the Indian Contract Act. The effect of fraud was not absolutely to avoid a contract induced by it but to render it voidable at the option of the party defrauded and had selected to avoid it. Admittedly in this case the Respondent had not furnished all the requisite information to the Claimant when the Supply Agreement was executed. The Claimant had repeatedly called upon the Respondent to furnish copy of the said missing page however the Respondent refused to supply the said missing page. The learned Senior Counsel for the Respondent categorically urged before this Court during the course of argument that though the said page was missing in the Supply Agreement entered into between the parties the Respondent had rightly refused to comply with the request of the Claimant for furnishing copy of the page No.9 of the Supply Agreement - the Arbitral Tribunal has rightly rendered a finding that the said page 9 of the Supply Agreement which was admittedly missing from the said Agreement on the date of execution of the said Agreement was very crucial for the purpose of taking a decision by the Claimant whether to go ahead with the execution of the agreement or not. Obviously when such page No.9 was missing in the Supply Agreement the Claimant could have asked for a copy thereof only after execution of the agreement. The Arbitral Tribunal has already rendered a finding in great detail that it was the duty of the Respondent to furnish the relevant data and material available with it to the Claimant before execution of the agreement and more particularly in view of the fact that the Claimant was fully dependent on the expertise of the Respondent the Claimant being new in the field and the Respondent being renowned and expert in the field as already represented by the Respondent to the Claimant. There is no substance in the submission of the learned Senior Counsel for the Respondent that the Claimant was well informed about the surrounding circumstances and pros and cons of the terms of the contract. The Respondent not having given the material data and the information to the Claimant deliberately though called upon which were crucial and material for the purpose of taking decision by the Claimant to enter into the contract or not cannot be allowed to urge that it was for the Claimant to have found out such data itself or that the Claimant having entered into the Supply Agreement with open eyes cannot be allowed to seek the data after execution of the Agreement. The Arbitral Tribunal has rightly held that the material information and the data which ought to have been furnished by the Respondent to the Claimant were suppressed and fraud was committed by the Respondent upon the Claimant - the Respondent having committed a fraud upon the Claimant which has been established before the Arbitral Tribunal the Respondent cannot be allowed to urge that Clause 9.3 of the Supply Agreement was in any manner repugnant to Clause 9.1 in support of the submission that Respondent had not issued any guarantee in favour of the Claimant in respect of the energy generation. It is an admitted position that and even according to the Respondent the agreement entered into between the Claimant and the Respondent is in force at least for the maintenance purposes even today. In my view for a rescission to operate has to be express and unequivocal which is missing in this case. Merely because it was urged by the Claimant in the Statement of Claim that it was entitled to the rescission of the contract that would not mean that there was rescission of the contract as sought to be canvassed by the learned Counsel for the Respondent - The Claimant had clearly exercised the option to press for Claim B on the basis of the ongoing contract which election was clear categorical and was conveyed to the Respondent during the course of arbitration proceedings. It is not the case of the Respondent that the Respondent had rescinded or terminated the contract with the Claimant. Since the Respondent had committed fraud upon the Claimant the Respondent could not have even otherwise placed reliance on Clause 9.3 or other provisions of the contract in support of the submission that the claim made by the Claimant was contrary to the said provisions. A party who commits a fraud on another party to the contract cannot seek reliance on a provision so as to take legal undue advantage of such provision. The parties before the Arbitral Tribunal sometimes may not be in a position to bargain with the Arbitral Tribunal about the fees demanded by the Arbitral Tribunal may be under an apprehension that the mind of the Arbitral Tribunal may be prejudiced if suggestion to reduce the fees under different heads is made by such party. It is for a party to select a suitable arbitrator in the facts of each case considering the stakes involved subject to the conditions in the arbitration agreement. Arbitration petition dismissed.

Summary

Issues Involved:
1. Misrepresentation and Fraud
2. Estimation and Guarantee of Energy Generation
3. Evidence and Findings of the Arbitral Tribunal
4. Contractual Obligations and Clauses Interpretation
5. Claims for Damages and Compensation
6. Procedural and Natural Justice Concerns

Detailed Analysis:

1. Misrepresentation and Fraud:
The Arbitral Tribunal found that the Respondent had committed fraudulent misrepresentation by providing false estimates of energy generation to induce the Claimant into entering the Supply Agreement. The Tribunal noted that the Respondent withheld crucial information and data, including the missing page 9 of the Supply Agreement, which contained the turbine-wise production estimates. The Tribunal concluded that the Respondent's actions amounted to fraud under Section 17 of the Indian Contract Act, 1872.

2. Estimation and Guarantee of Energy Generation:
The Tribunal interpreted Clauses 9.1 to 9.3 of the Supply Agreement and concluded that these clauses collectively implied a guarantee of energy generation. Despite the Respondent's argument that Clause 9.3 did not constitute a guarantee, the Tribunal held that the estimated average annual generation of 49.71 lakh KWh per WEG was a warranty. The Tribunal rejected the Respondent's claim that there was no guarantee provided.

3. Evidence and Findings of the Arbitral Tribunal:
The Tribunal considered extensive documentary and oral evidence from both parties. It found that the Claimant had relied on the Respondent's representations and that the Respondent had deliberately withheld crucial information. The Tribunal noted discrepancies in the Cash Flow Statement and other documents provided by the Respondent. The Tribunal also considered the evidence of expert witnesses and concluded that the Respondent's estimates were not genuine.

4. Contractual Obligations and Clauses Interpretation:
The Tribunal interpreted the contract to give business efficacy to the terms and ensure the intent of the parties was fulfilled. It held that Clause 9.1, which provided a specific estimate of energy generation, could not be rendered meaningless by Clause 9.3. The Tribunal applied principles of contract interpretation to conclude that the earlier clause would prevail over any conflicting later clause, ensuring the contract's purpose was achieved.

5. Claims for Damages and Compensation:
The Tribunal awarded damages to the Claimant for the difference between the estimated and actual energy generation. The Claimant had initially sought rescission of the contract but later pressed for damages under the second part of Section 19 of the Indian Contract Act, 1872, based on the ongoing contract. The Tribunal awarded compensation up to the date of the award but rejected the Claimant's claim for compensation for the entire 20-year period.

6. Procedural and Natural Justice Concerns:
The Respondent argued that the Tribunal had violated principles of natural justice by not giving it an opportunity to address the Claimant's alternate claim for damages. However, the Tribunal found that the Respondent had ample opportunity to address both claims during the arbitration proceedings. The Tribunal also rejected the Respondent's claim that the award was delayed, noting that the proceedings continued after the initial hearing for various reasons, including the substitution of the Claimant's name.

Conclusion:
The Tribunal's findings were based on a thorough examination of evidence and contractual provisions. The Tribunal's interpretation of the contract and its decision to award damages to the Claimant were upheld. The Tribunal's decision to reject the Claimant's claim for compensation for the entire 20-year period was also upheld, as the Claimant had not provided a basis for predicting long-term energy estimates. Both Arbitration Petitions were dismissed, and the award was upheld.