2017 (9) TMI 1984 - HC - Indian Laws

Liability for demanded/ defaulted cash calls - Raising of dispute between the parties in terms of JOA for arbitration - entitlement to a sum from the Respondent as outstanding amount of cash calls made in terms of Joint Operating Agreement (JOA) where under the respondent was having 11.11% share - interest as per the rate contained in the agreement between parties for a period of default up to date of claim - interest from date of claim till the date of Award and for Post Award Period - mechanism as provided in clause 7.6 of JOA followed or not - HELD THAT - It is quite clear that the interpretation which is sought to be made by the petitioner of the stated terms of the JOA is entirely baseless. If such an interpretation was accepted, it would tantamount to rewarding a party guilty of default. The interpretation urged by the petitioner would lead to absurd results. The moment it becomes apparent that no oil or gas is going to be discovered, the participants can default on the call money leaving only the operator to fund for the entire operation. The Award rightly relies upon clause 7.6.5 to hold that a defaulting party remains liable and obligated for its participating interest especially for costs and obligations. The petitioner is essentially trying to challenge the interpretation of the JOA made by the learned Arbitrator. The interpretation of the learned Arbitrator of the said clauses of the JOA are a plausible interpretation and cannot said to be in any manner illegal or suffering from any illegality. It is settled legal position that interpretation of a contract is within the domain of an Arbitrator. The court shall not ordinarily substitute its interpretation of the terms of the contract with the interpretation of the arbitrator. A perusal of the Award would show that the learned Arbitrator has noted that under Article 4.9.1 of the JOA any loss of damages suffered in connection with the conduct of the operations except in the case of gross negligence or wilful conduct will not render any liability on the operator. The Award notes that the only negligence alleged on behalf of the operator was seeking extension of time from the government for completion of Minimum Work Programme in respect of Phase-I of the Programme. It notes that the extension of time was obtained by the operator with the consent of the operating committee of which the respondent was a member. It is also noted that this issue has been raised for the first time in arbitration proceedings - the petitioner has not been able to show how this finding of fact is untenable or illegal. It is settled legal position that findings of fact recorded by the learned Arbitrator have finality. Petition dismissed.

Summary

Issues Involved:
1. Authority of the respondent to file the claim petition.
2. Liability of the petitioner to pay defaulted cash calls.
3. Credit of Rs.58,48,919/- not reflected in the respondent's accounts.
4. Delay by the operator in seeking extension for completion of Minimum Work Programme.

Issue-wise Detailed Analysis:

1. Authority of the respondent to file the claim petition:
The petitioner contended that the respondent had no authority to file the proceedings on behalf of other participants. However, the court noted that this issue was neither framed by the Arbitrator nor raised in the reply by the petitioner during arbitration. The JOA articles clearly vested the operator with the power to take necessary steps for the JV's functioning, including recovery of dues. Clause 4.6.05 of JOA specifically authorized the operator to represent parties before the court. Furthermore, none of the other JOA constituents objected to the operator's right to initiate proceedings. Hence, the court found this plea baseless and without merit.

2. Liability of the petitioner to pay defaulted cash calls:
The petitioner relied on Articles 7.6 and 7.7 of the JOA, arguing that forfeiture of its participating interest absolved it from paying the defaulted cash calls. However, the Arbitrator interpreted these clauses to mean that while the JOA provided a mechanism to ensure exploration work continued despite non-payment by one party, this did not absolve the defaulting party from its liability. The Arbitrator emphasized that allowing such an interpretation would reward defaulting parties and lead to absurd results. Clause 7.6.5 was cited, which stated that the defaulting party remains liable for its participating interest share of all costs and obligations. The court upheld the Arbitrator's interpretation, stating it was plausible and not illegal. The court referenced Supreme Court judgments emphasizing that contract interpretation is within the Arbitrator's domain and should not be substituted by the court unless it is unreasonable.

3. Credit of Rs.58,48,919/- not reflected in the respondent's accounts:
The petitioner claimed that a credit of Rs.58,48,919/- was not accounted for by the respondent. However, the court noted that this plea was not raised before the Arbitrator. The Arbitrator's records showed no dispute regarding the petitioner's 11.11% participating share or the quantum of expenditure. Thus, the court found no merit in this plea.

4. Delay by the operator in seeking extension for completion of Minimum Work Programme:
The petitioner argued that the operator's delay in seeking an extension from the government caused damages, making the respondent liable. The Arbitrator noted that under Article 4.9.1 of the JOA, the operator was not liable for losses unless caused by gross negligence or willful misconduct. The extension was obtained with the operating committee's consent, and the petitioner did not object at earlier stages. This issue was raised for the first time in arbitration. The Arbitrator's finding of fact was binding, and the petitioner failed to show how it was untenable or illegal. The court upheld the Arbitrator's decision.

Conclusion:
The court dismissed the petition, finding no merit in the petitioner's arguments. The Arbitrator's interpretation of the JOA clauses and findings of fact were upheld as plausible and within legal bounds. All pending applications were also disposed of.