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2018 (4) TMI 851 - SC - Indian LawsValidity of Arbitral Award - award pertaining to Bank Guarantees and the amounts specified in Exhibit- GG of the Claim Petition - Refurbishment of Thermal Power Plant - termination of contract - violation of a fundamental condition of the Contract i.e. non-furnishing of a Letter of Comfort from the Power Finance Corporation as provided in Clause 5.6 of the Onshore Supply Contract - misrepresentation of the warranty contained in Clause 19.2 (vii) of both the Onshore and Offshore Supply Contracts and Clause 20.2 of the Onshore Services Contract. Held that - the assertion made by the Board that the Units were achieving a capacity of 120 MW when operating in accordance with the good industrial practice, was found to be incorrect by the Arbitral Tribunal. We do not intend to take a different view on the findings of the fact recorded by the Arbitral Tribunal - Even if the Board believed that Units 3 and 4 were in fact designed for a capacity of 120 MW and operated at 120 MW, if it was found later that the assertion relating to the said capacity and functioning was not true, a clear case of misrepresentation, as per Section 18 of the Contract Act was made out. The evidence on record discloses that the Claimants could not ascertain the actual capacity and the functioning of the Units in spite of their best efforts. The relevant records were not furnished by the Board to enable the Claimants to ascertain the actual facts. The evidence on record supports the contention of the Claimants that it was not possible to ascertain the capacity and functioning of the Units only on the basis of visual inspections. The Arbitral Tribunal was of the opinion that the invocation of the Bank Guarantee was improper as it was not preceded by a Notice of Default as contemplated in Clause 16.3 of the Supply Contracts and a subsequent notice of termination under Clause 17.1 of the Supply Contracts. In view of the finding of the Arbitral Tribunal that the Board committed a serious breach of the contract and wrongfully terminated the contract, the Claimant was held to be entitled to return of the amounts for which the Bank Guarantees were given. The Bank Guarantee given on 24.02.2000 was a Performance Bank Guarantee and the Claimant is entitled for return of the amount for which the Bank Guarantee was given. The Arbitral Tribunal, however, failed to take notice of the fact that the other two Bank Guarantees were given for the amounts to be advanced by the Board. In fact, the Board had advanced the said amounts to the Claimants - the Claimant is not entitled for return of the amounts involved in the Bank Guarantees dated 22.02.2000 and 23.02.2000 as they were towards the amounts advanced by the Board. The award of the Arbitral Tribunal upheld with the modification that the Claimants are not entitled for the amounts involved in the Bank Guarantees dated 22.02.2000 and 23.02.2000 given by the Claimants - appeal disposed off.
Issues Involved:
1. Invitation for refurbishment proposals and issuance of provisional Letter of Intent. 2. Furnishing of Bank Guarantees and Performance Bond. 3. Determination of Zero Date and subsequent correspondence. 4. Invocation of Bank Guarantees and issuance of notice for default. 5. Arbitration and Tribunal's award. 6. Section 34 application and Additional District Judge's findings. 7. High Court's judgment and appeal to Supreme Court. 8. Relevant provisions of the Agreements. 9. Misrepresentation and non-supply of documents. 10. Award of the Arbitral Tribunal. 11. Submissions by both parties. 12. Public policy under Section 34 of the Arbitration and Conciliation Act. 13. Application of the law by the Supreme Court. Detailed Analysis: 1. Invitation for Refurbishment Proposals and Issuance of Provisional Letter of Intent: M.P. Power Generation Co. Ltd. (the Board) invited proposals for refurbishment of Units 3 and 4 of the Thermal Power Plants at Amarkantak. A provisional Letter of Intent was issued to Respondent No.1, ANSALDO Energia SPA (the Claimant) on 11th May 1999, followed by four Agreements signed on 24th August 1999. 2. Furnishing of Bank Guarantees and Performance Bond: The Claimant furnished a Bank Guarantee for ?9,29,20,000/- and another for US $ 1,708,100/- as per the Onshore and Offshore Supply Agreements. Additionally, a Performance Bond for ?18,48,00,000/- was executed by ANZ Grindlays Bank Limited. 3. Determination of Zero Date and Subsequent Correspondence: The Zero Date was agreed to be 9th March 2000. The Claimant later suspended the performance of the Agreement, citing non-furnishing of a Letter of Comfort from the Power Finance Corporation and misrepresentation of the warranty in Clause 19.2 (vii). 4. Invocation of Bank Guarantees and Issuance of Notice for Default: The Board invoked the three Bank Guarantees on 23rd June 2001 and issued a notice for default on 29th August 2001, leading to the termination of the contract. The Claimant raised a dispute which was referred to Arbitration. 5. Arbitration and Tribunal's Award: The Arbitral Tribunal passed an award in favor of the Claimant, declaring the Bank Guarantees wrongfully invoked and the agreements wrongfully terminated. The Tribunal awarded the Claimant sums with interest and costs of arbitration. 6. Section 34 Application and Additional District Judge's Findings: The Board's petition under Section 34 of the Arbitration and Conciliation Act was allowed by the learned Additional District Judge, setting aside the Arbitral Tribunal's award. The Judge upheld the Tribunal's findings on several issues but found fault with the award related to Bank Guarantees and amounts specified in Exhibit-GG. 7. High Court's Judgment and Appeal to Supreme Court: The High Court set aside the judgment of the Additional District Judge and restored the Arbitral Tribunal's award. The High Court held that the Additional District Judge erred in interfering with the Tribunal's findings on Issues 9 to 12. 8. Relevant Provisions of the Agreements: The Agreements included provisions for Performance Guarantees, issuance of Bank Guarantees against advance payment, and termination clauses. The Tribunal found that the Board's termination of the contract was illegal and a breach of fundamental conditions. 9. Misrepresentation and Non-Supply of Documents: The Tribunal concluded that the Board misrepresented the capacity and operating parameters of the Units and failed to supply relevant records, which was a substantial breach of the contract. 10. Award of the Arbitral Tribunal: The Tribunal awarded the Claimant amounts for the wrongful invocation of Bank Guarantees and other expenditures. The Tribunal rejected the claim for damages for wrongful termination of the contract. 11. Submissions by Both Parties: The Board argued that the award was perverse and vitiated by patent illegality, while the Claimant contended that the award was well-reasoned and did not suffer from any infirmity. The Board also argued that the Claimant waived the production of the Letter of Comfort, which the Tribunal rejected. 12. Public Policy under Section 34 of the Arbitration and Conciliation Act: The Supreme Court referred to the settled law on the scope of Section 34, noting that an award can be set aside if it is contrary to the fundamental policy of Indian law, the interest of India, or justice or morality. The Court emphasized the importance of a judicial approach and the application of mind by the arbitral authority. 13. Application of the Law by the Supreme Court: The Supreme Court upheld the Tribunal's findings on misrepresentation and non-supply of documents. The Court modified the award by excluding the amounts involved in the Bank Guarantees dated 22.02.2000 and 23.02.2000, as they were for the amounts advanced by the Board. The Court affirmed the award for the amounts related to the Performance Bank Guarantee and the claim in Exhibit-GG. Conclusion: The Supreme Court upheld the award of the Arbitral Tribunal with the modification that the Claimant is not entitled to the amounts involved in the Bank Guarantees dated 22.02.2000 and 23.02.2000. The award of ?11,14,55,042/- with interest and ?18,48,00,000/- with interest was affirmed. The appeals were dismissed with the above modification.
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