2019 (6) TMI 2 - SC - Indian Laws

Arbitral Award - price adjustment/escalation clause - fixed costs - escrow account - whether in the facts and circumstances of the case the Division of the High Court is justified in interfering with the award passed by the learned Arbitrator confirmed by the learned Commercial Court in an appeal under Section 37 of the Arbitration Act? Price adjustment/escalation - HELD THAT - The learned arbitrator interpreted the relevant clauses of the contract and specifically held that the date of commencement of the first operating year for the purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011 and accordingly the zero year for the purpose of price escalation would be 2011-12 and therefore the appellant shall be entitled to the enhanced amount as is applicable in the year 2013-14 (the price escalation). Having considered the reasoning given by the learned arbitrator we are of the opinion that the interpretation by the learned arbitrator was both possible as well as plausible. Therefore merely because some other view could have been taken the High Court is not justified in interfering with the interpretation made by the arbitrator which as observed was possible and plausible. Therefore in the facts and circumstances of the case we are of the opinion that the High Court has clearly exceeded in its jurisdiction in interfering with the award passed by the learned arbitrator with respect to claim no.1 price adjustment/escalation - the impugned judgment and order passed by the High Court for quashing and setting aside the award passed by the learned arbitrator with respect to claim no.1 price adjustment/escalation cannot be sustained and the same deserves to be quashed and set aside. Fixed costs - an amount of 78 crores awarded by the learned arbitrator with respect to compensation of loss - HELD THAT - Having gone through the relevant material on record we are of the opinion that the High Court has rightly set aside the award passed by the learned arbitrator with respect to claim no.2. Except the CA s certificate no further evidence had been led with respect to actual loss. Considering the material on record it is on the contrary found that in the relevant year the quantity of the coal lifted by the respondent was much above the fixed quantity. Thus the award passed by the learned arbitrator with respect to claim no.2 was contrary to the evidence on record and therefore is rightly set aside by the High Court. Escrow account - HELD THAT - From the correspondence between the parties it appears that even the appellant consented for opening the escrow account. The appellant also agreed that the amount to be deposited in the escrow account will be recovered by the respondent from immediate next payment of the coal bills of the joint venture company PKCL raised towards dispatches of coal from appellant s coal blocks. Thus thereafter it was not open for the appellant to claim the amount lying in the escrow account. If the amount lying in the escrow account is returned to the appellant the purpose and object of opening the escrow account which was as per the guidelines of the Ministry of Coal would be frustrated - The object and purpose of opening the escrow account was to see that the appellant company fulfils the contract as per the agreement and till the closure of the coal blocks - the High Court has rightly interfered with the award passed by the learned arbitrator with respect to claim no.3 escrow account by observing that the reasoning is perverse or so irrational that no reasonable person could have arrived at on the material/evidence on record. Appeal allowed in part.

Summary

Issues Involved:
1. Price Adjustment/Escalation
2. Fixed Costs
3. Escrow Account

Detailed Analysis:

1. Price Adjustment/Escalation:
The primary issue was whether the date of commencement for price escalation purposes should be 25.06.2011 or 25.03.2013. The learned Arbitrator held that the date of commencement of the first operating year for the purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011, making the zero year for price escalation 2011-12. This interpretation was based on the delay caused by force majeure in obtaining forest and environmental clearances, which extended the original commencement date. The High Court, however, set aside this interpretation, arguing that the price escalation should be based on the actual commencement date of 25.03.2013. The Supreme Court found that the Arbitrator’s interpretation was both possible and plausible, and that the High Court exceeded its jurisdiction by interfering with this interpretation. The Supreme Court restored the Arbitrator's award on this claim, stating that it did not involve any public policy issues.

2. Fixed Costs:
The Arbitrator awarded ?78 crores to the appellant for fixed costs, citing the respondent's failure to take the required delivery of coal, which caused losses to the appellant. The High Court set aside this award, noting that the appellant failed to provide substantial evidence beyond a Chartered Accountant’s certificate to substantiate the claimed losses. The Supreme Court agreed with the High Court, finding that the quantity of coal lifted by the respondent was above the fixed quantity and that the award was contrary to the evidence on record.

3. Escrow Account:
The Arbitrator directed the respondent to return the amount lying in the escrow account, which was deducted from the appellant’s monthly running bills. The High Court reversed this decision, noting that the escrow account was opened as per the Ministry of Coal’s guidelines for mine closure plans, and that the appellant had consented to this arrangement. The Supreme Court upheld the High Court's decision, agreeing that returning the escrow amount would frustrate the purpose of the escrow account, which was to ensure the appellant fulfilled its contractual obligations until mine closure.

Conclusion:
The Supreme Court partially allowed the appeal, restoring the Arbitrator’s award regarding price adjustment/escalation but upholding the High Court’s decision to set aside the awards related to fixed costs and the escrow account. The Court emphasized that the High Court had overstepped its jurisdiction in interpreting the contract differently from the Arbitrator, whose interpretation was reasonable and plausible.