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TMI Blog2013 (9) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... ise directed, runs in the teeth of the fact that being an international contract where payments had to be made in US$, pre-award interest has been awarded taking into account Libor rate of interest. We find that the learned Arbitrator has awarded interest at the rate of 2.335364% per annum and surely the learned Arbitrator would be contradicting himself if pre-award interest is restricted keeping in view rate of interest as per Libor and post-award interest to be 18% per annum. It was settled law that adequacy or inadequacy of evidence or on which side does the weight of the evidence lead to would not be an exercise permissible to be undertaken by a Court considering objections to an Award under Section 34 of the Arbitration and Conciliation Act 1996 - As long as there was some evidence to sustain a finding of fact recorded by Arbitrator the hands of approach must be adopted by a Court seized of objections to an Award. From the very nature of the objections it was apparent that the objector wanted this Court to re-appreciate the evidence and re-weigh the probabilities to infer facts - an exercise which we refuse to perform because our doing so would be in breach of the mandat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Arbitrator that keeping in view the usage of the trade the technical concept of a risk purchase by going to the open market was not applicable and the risk purchase had to be by requiring the short supplied coal to be supplied along with future supplies for the ensuing year when negotiations concluded with long term suppliers - Action of SAIL to call upon VALE/AMCI to participate at the Empowered Joint Committee meetings, which Committee concludes the bargains was nothing but compliance by SAIL with the requirement of law to permit VALE/AMCI to supply the coal which was short supplied as a part of the risk purchase exercise. Being a finding pertaining to a matter of fact and interpretation of the letters exchanged, it would be impermissible for a Court to even relook into the matter while considering objections to the Award - The arguments were nothing but another facet of the submissions advanced pertaining to risk purchase and for our reasons above, simply highlighting that risk purchase in the instant case has not to be treated as conventionally understood, court rejected the submissions - The argument was repelled for the reason it fell within the domain of the Arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the essence of the agreement and as per clause 8.1 if supply was not made within the agreed time SAIL had the right to seek liquidated damages at a sum equivalent to 1% of the price of the coal; but subject to a maximum of 10%. 5. Since much was debated on clause 9.1, on the subject of DEFAULT AND RISK PURCHASE, we note the same. It reads:- 9.1 If the SELLER in any manner or otherwise neglects or fails to perform the Agreement, the PURCHASER after having come to know of such negligence or non-performance after giving a notice shall take such action as it considers fit including taking risk purchase action for supply of similar MATERIALS at the risk and cost of the SELLER. 6. Clause 10.1 empowered SAIL to require the supplier to remedy breach of any provision of the agreement within a reasonable period and if no remedial action was taken to terminate the agreement and as per clause 12 the parties could foreclose the contract. As per clause 17.1 it was mandated that no change in respect of the terms covered by this agreement shall be valid unless the same is agreed to in writing by the parties hereto specifically stating the same as an amendment to this agreement.‟ As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as shipped i.e. just about 25% of the total supply and 50% of the supply as per schedule till the month of December as per the contract. SAIL was insisting that monthly supply quantity be enhanced so that by the contract stipulated completion date i.e. June 2008 the contracted supply of coal could be received by it and AMCI continued to express its inability to do so till on December 18, 2007 AMCI wrote a letter to SAIL; and since much was debated on the language of the said letter, we note the contents thereof. It reads as under:- Sub: LT Agreement 217/2007 Dtd. 23rd April 2007 Contract Issue Dear Mr.Ahmed, After discussions with personnel from the Coal Import Group, we wish to advise and clarify the following matters relating to the above mentioned agreement. As you are likely aware the port of DBCT is currently being expanded, but this expansion has been significantly delayed. Originally planned for completion in September/October 2007, it now appears likely that the expanded facility will not be operational till at least Mid March 2008. When AMCI met with SAIL in February this year for the LT negotiations, AMCI had in place agreements with DBCT to provide an additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racticable, but we felt that we must advise SAIL as early as possible so that SAIL is able to consider any other sourcing options that may be available. (emphasis underlined) 11. Reflecting back upon the letter, it would evidence that AMCI informed SAIL its inability to effect any further supplies till mid March 2008 and the justification given was the port expansion being delayed. On the assumption that port expansion work would be over by March 2008 and ship berthing facilities available by April 01, 2008, AMCI indicated its ability to supply only 0.7 Million MT coal and categorically stated that it would not be in a position to supply the balance 0.3 million MT coal. Aware of the fact that as per its letter AMCI was not giving a categorical assurance and was pledging a course of supply in the future based on the assumption that the port facility would be available by April 01, 2008, AMCI categorically informed SAIL that it was advising SAIL to consider any other sourcing options that may be available. 12. SAIL responded vide its letter dated January 01, 2008 requesting AMCI to ensure full contracted quantity being delivered within the delivery period and at least an attempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the meeting of its Empowered Joint Committee was scheduled to be held on September 29, 2008 and requested somebody to be deputed so that the original agreement including offer to supply alternative quality coal could be renewed. Neither AMCI nor VALE deputed any person to attend the meeting and on October 22, 2008, SAIL informed VALE and AMCI that it was not prepared to foreclose the agreement and requested full balance contracted quantity of coal to be supplied. It reiterated its request on October 31, 2008. VALE responded on November 17, 2008, with a proposal that a contract be entered into for supply of coal for the next year at fair market price to be mutually agreed and along with the delivery schedule for said period the parties could agree to supply the remaining contracted quantity along with future supplies. SAIL responded on December 1, 2008 informing that its offer was vague. SAIL reiterated that balance quantity be supplied at the earliest. 15. Talks broke down when on January 20, 2009, SAIL issued a legal notice through their solicitors to VALE and AMCI informing breach of the contract and calling upon VALE and AMCI to discharge their obligations. It was follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether the Claimant has affirmed the Contract; if so, whether the affirmation precludes the claim for risk purchases action for non-delivery during the First Delivery Period? k. Whether the Claimant is entitled to claim damages on account of the purported risk purchase and if so, to what amount? l. Whether the Claimant mitigated the loss it is alleged to have suffered? Liquidated Damages m. Whether the Para 8.1 of the GCS is enforceable? n. If so, whether the claim for liquidated damages can be maintained cumulatively with that of risk purchase under Para 9.1? o. Whether the Claimant is entitled to liquidated damages, and if so, to ascertain the period of delay for which such damages are payable, and the amount of such damages Expenditure p. Whether the claimant has incurred extra expenditure towards procurement of deficit coal from alternate sources? q. If so, what are the expenditures incurred and whether they fall to be borne by the Respondents? Demurrage r. Whether demurrage charges were incurred by the Claimant on the shipment on Hardwar ? s. If so to ascertain the amount of demurrage and whether they are payable by the Respondents to the Claimant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essly rejected the claim towards post award interest and thus the view taken by the learned Arbitrator as per decision dated May 16, 2011 was incorrect and VALE and AMCI are aggrieved in so far the award dated March 10, 2011 has been upheld. 22. It was urged before us in appeal by Sh.Arvind Nigam, Senior Advocate and Mr.Amit Sibbal, Advocate who appeared for VALE and AMCI that Courts in India have consistently given a wider meaning to the term public policy‟ rendering an award liable to be set aside if it was contrary to (i) the interest of India; (ii) justice or morality; (iii) was patently illegal; and (iv) contrary to a fundamental policy of Indian law. The following decisions were cited to make good the point:- (i) (2008) 13 SCC 80 Delhi Development Authority Vs. R.S. Sharma,; (Paras 17 to 21) (ii) (2006) 4 SCC 445 Hindustan Zinc Ltd. Vs. Friends Coal Carbonization, (Paras 13, 14); (iii) AIR 2010 SC 3543 Rashtriya Chemicals Fertilizers Ltd. Vs. Chowgule Brothers Ors. (Paras 20-25); (iv) (2010) 5 SCC 294 The Amravati District Central Cooperative Bank Ltd. Vs. United India Fire General Insurance Co. Ltd. (Para 23); (v) 2011 (I) AD (Delhi) 76 Union of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivery period 2008-09. It was urged that whereas SAIL had simply pleaded having made a risk purchase of the quantity of coal which was short supplied and not that the so-called risk purchase was by way of augmenting quantity for the delivery period 2008-09 from the long term suppliers of hard coking coal. Learned senior counsel relied upon the decisions reported as 2011 (10) SCC 573 M.S.K.Projects (I)(JV) Ltd. Vs. State of Rajasthan and 2005 (1) Arb. LR 369 MTNL Vs. Semens Public Communication Network to urge that the learned Arbitrator cannot travel beyond the terms of reference. It was urged that there was no evidence to establish any conscious decision taken by SAIL to make risk purchase and further that there was no evidence to establish any risk purchase being made. Thus, it was urged that the award was without any evidence. Drawing attention to the testimony of Mr.Arun Jot Malhotra, a witness of SAIL as also the testimony of Mr.R.P.Rawat another witness of SAIL, learned senior counsel urged that the witnesses admitted that there was no record with SAIL to evidence contracts made with other long term suppliers for risk purchase nor was there any evidence that pertaining to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proper and adequate; a mandate which was breached requiring the award to be set aside keeping in view the law declared in the decisions reported as 2008 (Supp. 1) Arb. LR 379 Hindustan Fertilizers Vs. J.M.Baxi Co., 2008 (3) Arb. LR 667 Jai Singh Vs. DDA and 2006 (11) SCC 181 McDermott International Inc. Vs. Burn Standard Co. Ltd. 25. Rebutting the submissions made by learned senior counsel for VALE, Sh.A.K.Ganguly, Senior Advocate who appeared for SAIL, drew attention of the Court to the expert witnesses examined by VALE/AMCI; namely Dr.Neil J.Bristow and Mr.C.V.Gubbins to bring home the point that hard coking coal is a key raw material used in steel making. Converted into coke, hard coking coal when fed into blast furnaces along with iron, in a molten state, results in high quality steel being produced. The testimony of the witnesses wherein they deposed hard coking coal is a scarce resource with three main countries being suppliers i.e. Australia, U.S. and Canada was referred to with conjunction with their testimony that Japan being the largest manufacturer of steel sets the benchmark for the price of hard coking coal inasmuch as Japan commences negotiations in the month of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Rawat, who were extensively questioned on the subject of risk purchase effected and for which, while dealing with the objections to the Award under the head whether the Award is contrary to law, we would be highlighting the arguments of the objectors with reference to the pleadings and the evidence led and would inform the reader of our present decision that the submissions by VALE/AMCI would clearly evidence their understanding of SAIL‟s pleading as aforenoted. 29. In the decision reported as AIR 1964 SC 164 Kunju Kesaran Vs. M.M.Philip Ors., speaking on the subject of variance between pleading and proof, the Supreme Court had opined that the purpose of pleadings is to make it known to the opposite party as to what is the case of the opposite party and this helps the parties in leading evidence; and in what manner parties understand the pleadings of the opposite party could be evidenced by the evidence led. The purpose of pleadings is to safeguard against the risk of the opposite party being caught unaware of the case of the other. But where parties lead evidence on a subject matter of dispute, it would not lie in the mouth of either party to urge that the case pleaded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method by which SAIL could effect risk purchase was to enter into a contract with long term suppliers to sell the quantity of coal which was agreed to be supplied by VALE/AMCI but was not supplied. It is not the form of a pleading, but the content which matters. Meaningfully read, case pleaded by SAIL was that it effected risk purchase by entering into contracts with three companies and while so doing not only it contracted to purchase hard coking coal for future use for the ensuing year but even included the short supply quantity in question. The case of SAIL has to be understood with reference to the fact that as a manufacture of huge quantity of steel, SAIL maintains a buffer stock and while effecting purchase of hard coking coal it keeps into account monthly requirement at its different plants but also a buffer stock to be maintained. Thus, argument by VALE/AMCI with reference to risk purchase, which is premised on conventional risk purchases effected for example : A‟ having agreed to sell 100 rims of paper of quality X‟ to B‟ on May 31, 2013 at Delhi being in breach, and the contract permitting B‟ to make risk purchase, warranting B‟ to purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show shipments made by the three companies in the year 2007- 08 for alone then could we have a base data, with reference whereto for the next years supplies one could have inferred extra-procurement made. The further limb of the second submission was that evidence led by SAIL would reveal that contracted supply for the year 2007-08 entered into by SAIL with BHP, Anglo and Peabody was 5.5 million MT, 2.1 million MT and 1.0 million MT respectively i.e. a total quantity of 8.6 million MT and for the next year i.e. 2008-09 the quantities purchased from the three companies rose to 5.6 million MT, 2.2 million MT and 1.0 million MT respectively i.e. 8.8 million MT. Thus the difference in quantity between the two years was only 0.2 million MT coal. Further, a letter dated June 10, 2008 addressed by BHP would reveal that said company had failed to supply 5.4 million MT coal pertaining to the period 2007-08. The further submission pertaining to the second sub-head argument was that assuming SAIL‟s case at its best keeping in view its plea that it use to maintain a buffer stock, evidence would establish that for the year 2007-08 SAIL had entered into contracts to procure such quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sually reached between January and March. The prices settled between BMA and Nippon would usually be the benchmark price for the claimant in its negotiations with its suppliers in May. For 2008-09, it was settled at US$ 300/M. During September 2008 to March 2009, due to the global financial crisis, the steel producers announced rapid cuts in production. Steel producers such as SAIL faced high prices for its hard coking coal of USD 300/T. So SAIL would be paying a high premium for its coking coal from its long term suppliers. Relying on McCloskey‟s Coal Reporter of October 28, 2009, it was said that SAIL was pushing back stems ( a term used in maritime transportation to mean shipping/loading arrangements) as the demand for steel had declined. The respondents therefore said that SAIL had never intended to take up the Respondent‟s various offer for the short delivered coal because of the fall in coal price such that it became no longer beneficial to do so. 35. Now, it was not the case of VALE/AMCI that it was not in breach of the contract. Indeed, VALE/AMCI had entered into a contract to supply one Million Metric Ton of hard coking coal to SAIL commencing from July 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de a brief reference in paras 12 to 14 above, would reveal that by March 25, 2008 SAIL was informed that VALE/AMCI cannot supply any coal whatsoever as per the specifications under the contract but they could effect deliveries as per the existing contract as also future supplies from its Broadlea Corborough Mines. Now, these letters would reveal that they would be VALE/AMCI‟s other sourcing options‟ available to SAIL apart from other suppliers. The correspondence exchanged between the parties would reveal that on April 24, 2008, SAIL requested AMCI to attend a meeting of its Empowered Joint Committee scheduled to be held on May 09, 2008 so that status of supply of coal could be discussed to which AMCI responded on April 29, 2008 that it was useless for it to attend the meeting because it could not supply any coal. On May 12, 2008, VALE sent the technical quality analysis certificate of coal from its Broadlea Carborough Mines to which SAIL responded on July 28, 2008 that AMCI/VALE should confirm a convenient date for a meeting with its Empowered Joint Committee. AMCI/VALE did not notify a date convenient to them. On September 24, 2008 SAIL sent a reminder on the subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the evidence led and law applicable by the learned Arbitrator in paragraphs 117 to 194 of the Award; and suffice would it be to state that each and every aspect of the evidence referred to by AMCI/VALE has not only been noted but has been dealt with by the learned Arbitrator and being a matter pertaining to re-appreciation of evidence, we repeal each and every submission made under the five sub-heads. 39. The third head of challenge to the Award was that the finding returned on the subject of VALE/AMCI waiving right to notice of risk purchase under paragraph 9 of the General Conditions of the Agreement is vitiated on account of the law laid down in the opinions reported as 2000 (I) AD (Delhi) 145 Alfa Laval (India) Ltd. Vs. Union of India, 2008 (3) Arb.LR 569 (Delhi) Union of India Vs. Peekay Industries, 2009 (X) AD (Delhi) 486 Flowmore Private Limited Vs. National Thermal Power Corporation 2005 (6) SCC 462 Bhagawati Oxygen Ltd. Vs. Hindustan Copper Ltd. AIR 2000 Bom. 204 Maharashtra State Electricity Board, Bombay Vs. Sterlite Industries. 40. Letter dated December 18, 2007 written by AMCI to SAIL, contents whereof we have noted in para 10 above is the documentary evidence c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that, the learned Arbitrator construed para 9 of the General Conditions of the Agreement as mandating a risk purchase notice followed by a finding that the letter of December 18, 2007 amounted to a waiver notwithstanding the same not expressly authorizing SAIL to buy from other sources. Letter dated December 18, 2007 is a matter of record. Its interpretation was within the domain of the Arbitrator and that it has been treated by the learned Arbitrator as a writing evidencing a consent by AMCI/VALE; a sufficient answer from us with respect to the three limbs of the argument pertaining to waiver. 43. Though fourth limb of the argument would be that the Award is against the settled principle of election. It was urged that a perusal of para 125 of the Award would reveal that the learned Arbitrator assume AMCI‟s argument to be that SAIL having elected for performance could not invoke para 9 of the General Conditions of the Agreement to effect risk purchase. Since in para 136 of the Award the learned Arbitrator held that SAIL was not precluded from taking risk purchase action it was urged that this implies that as per the understanding of the learned Arbitrator risk purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt may appear to be attractive at the first blush, but ignores that by its letter dated December 18, 2007, AMCI had itself waived the requirement to be put to risk purchase notice inasmuch as expressing inability to supply the contracted quantity of coal SAIL was advised to consider any other sourcing options that may be available. Now, one of the grievance of VALE/AMCI was that when SAIL proceeded towards risk purchase they had to be intimated of said fact so that, to mitigate the loss, VALE/AMCI could participate at the risk purchase. 45. While dealing the action taken by SAIL to effect risk purchase, in paragraphs 28 to 35 above we have concurred with the view taken by the learned Arbitrator that keeping in view the usage of the trade the technical concept of a risk purchase by going to the open market was not applicable in the instant case and the risk purchase had to be by requiring the short supplied coal to be supplied along with future supplies for the ensuing year when negotiations concluded with long term suppliers. Action of SAIL to call upon VALE/AMCI to participate at the Empowered Joint Committee meetings, which Committee concludes the bargains, is nothing but compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under the circumstances, the very basis of the argument that letters written by SAIL amounted to time being extended to complete the contract is unfounded. We have already held hereinabove that in view of the practice in the trade of carry over in connection with supply of coal under the long term agreements, letters written by SAIL on the subject have to be treated as enabling VALE/AMCI to participate in future supplies and simultaneously make good the existing shortfall i.e. participate in the risk purchase process. 48. The sixth argument was that the finding by the learned Arbitrator on the quality of coal offered to be supplied from the Broadlea Coal Mines, suffice would it be for us to note that from the facts noted in para 14 above, it is apparent that on May 12, 2008 VALE attached for consideration by SAIL the technical quality analysis certificate of coal from its Broadlea Carborough Mines to which SAIL responded on July 28, 2008 that the same would be considered by its Empowered Joint Committee and requested AMCI/VALE to confirm a date convenient for the meeting. VALE/AMCI never responded. On September 24, 2008 SAIL informed AMCI/VALE that a meeting of its Empowered Joi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned Single Judge has correctly held that save and except the amounts awarded as per the award dated March 10, 2011, all other claims were rejected, and this obviously included the claim towards post-award interest. The reasoning by the learned Arbitrator in the order dated May 16, 2011 that he consciously omitted to grant post-award interest in view of Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 which envisages interest at the rate of 18% per annum unless otherwise directed, runs in the teeth of the fact that being an international contract where payments had to be made in US$, pre-award interest has been awarded taking into account Libor rate of interest. We find that the learned Arbitrator has awarded interest at the rate of 2.335364% per annum and surely the learned Arbitrator would be contradicting himself if pre-award interest is restricted keeping in view rate of interest as per Libor and post-award interest to be 18% per annum. 55. Accordingly, FAO(OS) No.214/2012 is also liable to be dismissed. 56. All appeals i.e. FAO (OS) No.210/2012, FAO (OS) No.214/2012 and FAO (OS) No.215/2012 are dismissed with parties to bear their own costs in the appea ..... 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