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TMI Blog2023 (5) TMI 1319X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the Commercial Court merely reproduced the findings of the award. The Commercial Court dealing with Section 34 application was not acting as a Court of Appeal. Yet, looking to the long-drawn arguments, the Commercial Court enumerated the issues raised and then returned the findings after examining the record and while rejecting the submissions made on behalf of the State. There had been no such flaw in the judgment and order passed by the Commercial Court which called for interference by the High Court on the parameters and within the periphery of Sections 34/37 of the Act of 1996. The narrow scope of patent illegality cannot be breached by mere use of different expressions which nevertheless refer only to error and not to patent illegality . It is reiterated that what has been stated and underscored by this Court in DELHI AIRPORT METRO EXPRESS PVT. LTD. VERSUS DELHI METRO RAIL CORPORATION LTD. [ 2021 (9) TMI 1479 - SUPREME COURT] that restraint is required to be shown while examining the validity of arbitral award by the Courts, else interference with the award after reassessing the factual aspects would be defeating the object of the Act of 1996. This is apart from the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and order dated 08.03.2021, as passed by the High Court of Judicature at Bombay, Goa Bench in Commercial Appeal No. 12 of 2019, one by Reliance Infrastructure Limited1, being the appeal arising out of SLP (Civil) No. 8493 of 2021; and another by the State of Goa2, being the appeal arising out of SLP (Civil) No. 16778 of 2021, have been considered together and are taken up for disposal by this common judgment. 3. By way of the impugned judgment and order dated 08.03.2021, while dealing with an appeal Under Section 37 of the Arbitration and Conciliation Act, 19963 read with Section 13 of the Commercial Courts, Commercial Division and Commercial Appellate Divisions of High Courts Act, 2015, the High Court has proceeded to upset the order dated 12.09.2019, as passed by the Principal District & Sessions Judge, North Goa, Panjim4 in dismissing the application filed Under Section 34 of the Act; and has partially set aside the award dated 16.02.2018, as made by the Arbitral Tribunal comprising of the Sole Arbitrator, a former Judge of this Court. Relevant factual aspects and background 4. Shorn of unnecessary details, the relevant factual aspects could be usefully summarised as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... switch over to the alternate fuel and charges payable in that regard has formed a major part of contentions in this case. Hence, a little elaboration shall be apposite. 4.3.1. On 26.04.2013, the Government of Goa replied to the claimant's letter dated 21.03.2013, inter alia, in the following terms: In view of your offer under reference, the Government has decided to continue to purchase power @ Rs. 8.58 per unit w.e.f. 01/04/2013 as per your formula proposed in the letter dated 21/03/2013 considering the present rates of fuel and dollar. The same may be noted for records and incorporated in your power bills. The revised fixed rate shall be applicable from 1st April 2013. 4.3.2. On 30.04.2013, the claimant, however, sought a clarification from the Government regarding the formula-based tariff payable for the supply of electricity, inter alia, in the following words: 1. With regard to the price mentioned in our proposal dated 21.03.2013, the tariff of Rs. 8.58/unit is based on the prevailing RLNG price ($17.2/mmbtu) and INR/USD exchange rate (1 $ = Rs 54) and is therefore not fixed. The same shall vary depending upon the fuel price in the market and the INR/USD exchange ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Joint Electricity Regulatory Commission 7 for recovery of its dues. The State submitted before JERC that an Arbitrator be appointed in terms of PPA to adjudicate upon the disputes. On 11.12.2015, JERC, based on agreement of both the parties, referred the disputes to the Sole Arbitrator Mr. Justice B.P. Singh (Former Judge of this Court) in pursuance of its powers Under Section 86(1)(f) of the Electricity Act, 2003. The arbitration proceedings under this reference have led to the present appeals. Arbitration proceedings and award 5. After long-drawn proceedings of arbitration with filing of claim, reply and counter claim, rejoinder, sur-rejoinder, amendment of counter claim, filing of various applications and written submissions, the Arbitral Tribunal ultimately passed the award dated 16.02.2018 whereby it directed the State to pay to the claimant a sum of Rs. 278.29 crore (principal amount) together with interest for the period up to 31.10.2017; to pay further interest from 31.10.2017 at the rate of 15% per annum from the date of award until the date of full payment of the amount including interest as on the date of the award until effective payment/realization; and further clar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternatives of calculation for arriving at the amount payable in terms of findings. Having examined these alternatives and with reference to its findings, the Tribunal made the award in the following terms: "77. This Tribunal after considering all aspects of the matter has decided four of the issues in favour of the Claimant, and one in favour of the Respondent. The scenario attracted in view of the above findings is Scenario 22. Accordingly, the Claimant will be entitled to a sum of Rs. 119.32 Crores by way of principal amount and a sum of Rs 158.98 Crores by way of interest for the period up to 31.10.2017 totaling Rs. 278.29 Crores. For the period subsequent to 31st October 2017, the Claimant shall be entitled to interest calculated at the same rate as for the period prior to that date, till the date of the award. The Claimant shall also be entitled to payment of interest at the rate of 15% per annum on the above amount from the date of the award till the actual payment of the full amount awarded together with interest. If the full payment of the amount awarded together with interest is made within the period of two months from the date of the award, the Respondent shall not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant, the claimant could claim amount from GOG? In the Affirmative 4 Whether the Ld. Arbitrator ought to have appointed an expert to ascertain the correctness and veracity of the invoices raised by the claimant from 14.08.1999 and calling upon the expert to submit his report? In the Negative 5 Whether the arbitration proceedings are bad since there is no any order passed on the application filed by GOG on 30.03.2016 calling upon the claimant to produce documents. In the Negative 6 Whether the interest awarded by the Ld. Arbitrator is exorbitant and against the PPA? In the Negative 7 Whether the findings of the Ld. Arbitrator that 3.78 per unit was a fixed amount for supply of backup power by GOG to the claimant is illegal and contrary to the terms of PPA? In the Negative 8 Whether the claimant could not levy variable charges on 4 MW deducted from rated capacity of 19 MW? In the Negative 9 Whether the claim ought to have been rejected on the ground that the claimant did not consider downrating? In the Negative 10 Whether the arbitral award is arbitrary and perverse and passed contrary to principles of natural justice and hence against the public policy? In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the impugned Award is ex facie erroneous and warrants interference?" 7.2. As regards point (A) aforesaid, the High Court, though mentioned a decision of this Court in the case of Ssangyong Engineering and Construction Co. Ltd. v. NHAI : (2019) 15 SCC 131, wherein principles have been laid down for dealing with challenge to an award Under Section 34 of the Act of 1996 but, thereafter, considered it appropriate to refer to the analysis by a learned Single Judge of the High Court and, after reproducing a few passages from that decision of the learned Single Judge, observed that the submissions would be evaluated with reference to the principles so stated. Be that as it may, thereafter, the High Court dealt with the questions raised by the State as regards the alleged breach of principles of natural justice in point (B) and rejected all such contentions with reference to the record of proceedings as also the pleadings and evidence of the parties. However, the High Court proceeded to disapprove the award in relation to the claims covered by the aforementioned points (C), (D), (E) and (F). Of course, on point (G), in relation to the award of interest for the pre-reference period and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant deposited a further amount of Rs. 94 crores in this Court in terms of our order dated 8.11.2019. The Respondent was permitted to withdraw both these amounts by furnishing bank guarantees of a Nationalized Bank. The Respondent was directed to keep alive such bank guarantees until the disposal of this Commercial Appeal and for 15 days thereafter. 198. Though we have partly allowed this appeal, it is unlikely that the Respondent might have to bring back any portion of the amounts withdrawn by it. The Respondent to, therefore, assess this position and deposit such amount, if any, in this Court within 14 days from today. Only if no amount is to be brought back, the Respondent need not keep the bank guarantees alive beyond 15 days from today. 199. Further, if despite our order partly allowing this appeal, the Appellant is still due and payable to the Respondent the amounts over and above those which the Respondent has already withdrawn against bank guarantees, then, obviously, the Respondent need not keep the bank guarantees alive for more than 15 days from today. The Appellant to then deposit the balance amount in this Court within four weeks from today. The Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that certain clauses of PPA had not been considered by the Arbitral Tribunal, and the High Court held that the Arbitral Tribunal did not consider the issue raised regarding non-compliance with clauses 12.1.4 to 12.1.7 of the PPA but, the said clauses related only to Fuel Supply Contract 8 for Naphtha, and not the alternate fuel. There was a separate Clause i.e., Clause 12.1.9 relating to change in fuel in terms of use of alternate fuel and hence, Clauses 12.1.4 to 12.1.7 were inapplicable. In fact, the Arbitral Tribunal had observed that the Government of Goa had even agreed to the formula on the basis of which the tariff would be computed for alternate fuel. According to learned Senior Counsel, the High Court applied an inapplicable clause, while ignoring the fact that all the relevant documents including the price certificate and dollar rate received from PSUs were forwarded along with invoices. Further, the Government of Goa continued to take power from the claimant without dispute or demur. Even otherwise, no issues were raised contemporaneously by the Government of Goa, and the supposed non-compliance of clauses 12.1.4 to 12.1.7 was raised for the first time in the sur-rejoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not permissible at all. 9.5. In regard to the question of variable charges on 4 MW power, it has been argued that the issue before the Arbitral Tribunal was as to whether the Government of Goa was justified in claiming credits for 4 MW in computing tariff heat rate for arriving at the fuel cost variable charges from January, 2009 to 30.08.2014. This claim was made by the Government in reference to the letters dated 02.01.2009 and 19.01.2009. It has been contented that the Arbitral Tribunal, after appreciating the evidence including the said letters, concluded that Government of Goa was exempted from payment of only fixed cost with regard to this 4 MW power permitted to be supplied to the other consumers; and the said letter dated 19.01.2009, in no way, affected the committed power supply by the claimant to the Government. Moreover, the Government had maintained its right to revert to take the said 4 MW power in future with all the terms and conditions of PPA remaining the same; and variable charges billed to the Government for supply to them were as per PPA. According to the learned Counsel, the High Court erroneously re-appreciated the letters to substitute its own view with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproached the entire case from an altogether wrong angle; and when the Arbitrator adverted to wrong questions, the result has been of wrong answers. Learned Attorney General would submit that the High Court rightly interfered with the order Under Section 34 of the Act of 1996 considering the fact that the Commercial Court did not adjudicate upon the arbitral award and rather framed separate issues like a regular Appellate Court. 10.2. It has been strenuously argued by the learned Attorney General that in the award in question, the Arbitral Tribunal proceeded to rely upon certain correspondence between the parties but, failed to examine the root question as to whether such correspondence had the effect of variation of terms of contract and as to whether such correspondence changed the fundamentals of contract. The learned Attorney General has re-emphasised that the Arbitral Tribunal has not considered the relevant clauses of the contract and this had been a matter of patent illegality. Two decisions of this Court have been relied on in this regard, namely State of Chhattisgarh and Ors. v. Sal Udyog Pvt. Ltd.: (2022) 2 SCC 275 and Associate Builders v. Delhi Development Authority : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 12.7 of the PPA was not considered or discussed in the award. These clauses had a material bearing on the question of liability of the Government of Goa to pay Rs. 24.66 crore on account of variable charges relatable to change in fuel from Naphtha to RLNG; and there had not been any finding by the Arbitral Tribunal that the aforesaid clauses were not applicable when there was change to RNLG from Naphtha. It has further been contended that the claimant was obligated to keep the Government updated about its negotiations with fuel suppliers and provide the correspondence with potential suppliers and other drafts. The letter dated 23.05.2013 stated that all the terms and conditions of the PPA were to remain unaffected and the non-production of FSCs and detailed invoices took the opportunity to object to the same away from the Government. In light of the terms of the PPA, the submission of the claimant that the Government could not have frozen dollar rate and RLNG rate, would be unsustainable. Moreover, it would be wrong to assert that if fuel facilitation charges had not been given to the claimant by the Arbitral Tribunal, the requirement of providing FSCs would be waived off. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, while billing the variable charges for that period, contracted capacity also had to be reduced. It has been submitted that the failure to do so has resulted in a situation where the Government was charged by the claimant for variable charges on units sold to third parties. This has resulted in a dual profit to the claimant, for having been held entitled to recover variable costs for 4 MW electricity from the State despite not supplying electricity to it; and also being compensated for both fixed charges and variable charges for 4 MW electricity by such third parties. It has further been submitted that the Arbitral Tribunal relied on the letter dated 19.01.2009 which permitted the claimant to trade 4 MW of electricity to third parties but, failed to observe that this was in response to a previous communication by the claimant in which, the issue of fixed charges was specifically raised. Thus, the letter dated 19.01.2009 cannot be viewed as acquiescence to payment of variable charges on 4MW power; and the finding of the Arbitral Tribunal in this regard had been perverse. 10.7. Learned Attorney General has also submitted that the Arbitral Tribunal has again ignored the contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carded having regard to Section 74 of the Contract Act, 1872. Although the High Court rightly reduced the post-award interest but only modified the amount. It has been further submitted, by relying on NHAI v. M. Hakeem: (2021) 9 SCC 1, that such course of action was not permissible as modification of an award would not be possible Under Section 34 of the Act of 1996. Thus, the award of interest of the Tribunal was liable to be set aside as being patently illegal. 10.9. A few other submissions have also been made by the learned Attorney General with reference to the calculation of the awarded amount. It has been contended that as per the PPA, the claimant was required to submit its bills according to the forecast period and thereafter for each subsequent financial year; however, the claimant submitted bills for the tariff period which resulted in inflated bills. Further, the Arbitral Tribunal calculated the amount to be awarded based on the supposed mutually agreed upon table of calculations; however, the set of calculations provided by the claimant was disputed by the State. The Tribunal did not advert to the submission that the principal amount to be paid would be Rs. 60.76 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute in accordance with the Rules of law designated by the parties as applicable to the substance of the dispute; (ii) any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules; (iii) failing any designation of the law under Clause (a) by the parties, the arbitral tribunal shall apply the Rules of law it considers to be appropriate given all the circumstances surrounding the dispute. (2) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it to do so. 10[(3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.] **** **** **** 34. Application for setting aside arbitral award.-(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3). (2) An arbitral award may be set aside by the Court only if-- (a) the party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.] (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made Under Section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) On receipt of an application Under Sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. 14[(5) An application under this Section shall be filed by a party only after issuing a prior notice to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward Under Section 34 and the scope of appeal Under Section 37 of the Act 13. Having regard to the contentions urged and the issues raised, it shall also be apposite to take note of the principles enunciated by this Court in some of the relevant decisions cited by the parties on the scope of challenge to an arbitral award Under Section 34 and the scope of appeal Under Section 37 of the Act of 1996. 13.1. In MMTC Limited (supra), this Court took note of various decisions including that in the case of Associate Builders (supra) and exposited on the limited scope of interference Under Section 34 and further narrower scope of appeal Under Section 37 of the Act of 1996, particularly when dealing with the concurrent findings (of the Arbitrator and then of the Court). This Court, inter alia, held as under: "11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided Under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estic arbitrations, violation of Indian public policy also includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence. 14. As far as interference with an order made Under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference Under Section 37 cannot travel beyond the restrictions laid down Under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court Under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court Under Section 34 and by the court in an appeal Under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings." 13.2. In the case of Ssangyong Engineering (supra), this Court has set out the scope of challenge Under Section 34 of the Act of 1996 in further details in the following words: "37. Insofar as domestic awards made in India are con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse." 13.3. The limited scope of challenge Under Section 34 of the Act was once again highlighted by this Court in the case of PSA SICAL Terminals (supra) and this Court particularly explained the relevant tests as under: "43. It will thus appear to be a more than settled legal position, that in an application Under Section 34, the court is not expected to act as an appellate court and reappreciate the evidence. The scope of interference would be limited to grounds provided Under Section 34 of the Arbitration Act. The interference would be so warranted when the award is in violation of "public policy of India", which has been h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law."" 13.4. In Delhi Airport Metro Express (supra), this Court again surveyed the case-law and explained the contours of the Courts' power to review the arbitral awards. Therein, this Court not only re-affirmed the principles aforesaid but also highlighted an area of serious concern while pointing out "a disturbing tendency" of the Courts in setting aside arbitral awards after dissecting and re-assessing factual aspects. This Court also underscored the pertinent features and scope of the expression "patent illegality" while reiterating that the Courts do not sit in appeal over the arbitral award. The relevant and significant passages of this judgment could be usefully extracted as under: 26. A cumulative reading of the UNCITRAL Model Law and Rules, the legislative intent with which the 1996 Act is made, Section 5 and Section 34 of the 1996 Act would make it clear that judicial interference with the arbitral a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot;patent illegality". What is prohibited is for Courts to reappreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as Courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award Under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a Clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression "patent illegality". 30. Section 34(2)(b) refers to the other grounds on which a court ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the award and the order passed by the Additional District Judge Under Section 34 of the Arbitration Act are concerned, it is required to be noted that in an appeal Under Section 37 of the Arbitration Act, the High Court has entered into the merits of the claim, which is not permissible in exercise of powers Under Section 37 of the Arbitration Act. 9. As per settled position of law laid down by this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India. The award can be set aside Under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to: (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal. None of the aforesaid exceptions shall be applicable to the facts of the case on hand. The High Court has entered into the merits of the claim and has decided the appeal Under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial Court. Thus, the High Court has exercised the jurisdiction not vested in it Under Section 37 of the Arbitration Act. The im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t decided by the Arbitral Tribunal. In our view, the High Court has dealt with this issue in its proper perspective and this baseless objection has rightly been rejected. We find it rather strange that such an objection standing at contradiction to its own stand before the Arbitral Tribunal and against its own amended pleading has at all been projected by the State as a ground of challenge to the award in question. It appears that in the counter claim filed by Government of Goa before the Arbitral Tribunal, initially it was prayed that all transactions and invoices raised by the claimant need to be re-examined through a technical cum financial expert so as to ascertain the correctness of the bills in terms of Section 26 of the Act but, thereafter, the Government itself amended its counter claim, as permitted Under Section 23 of the Act by the Arbitral Tribunal, and dropped this prayer. It was then pleaded by the Government that it had engaged the services of an expert and with his assistance, had reworked the amount which was payable by the claimant to it. The High Court has held that after such deletion of the prayer, it was reasonable for the Arbitral Tribunal to proceed on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in absence of Government of Goa establishing any serious prejudice, there was no breach of principles of natural justice merely because the Arbitral Tribunal had failed to make a formal order on the application seeking production of documents. We are in agreement with the said observations and findings of the High Court. 14.2. Government of Goa's contention that opportunity was not granted by the Arbitral Tribunal to file additional written submission has also been dealt with by the High Court with the finding that sufficient opportunity was given by the Arbitral Tribunal since there were at least two meetings/hearings before the learned Arbitrator where the Government of Goa did neither file nor seek leave to file written submissions in response to the claimant's written clarifications/submissions. We are in agreement with these findings too. 14.3. In fact, the submissions of the aforesaid nature, attempting to find fault with the proceedings of arbitration on such hyper-technical but baseless grounds only show an attempt on the part of the State to somehow question the award and seek interference, irrespective of the principles laid down by this Court. 14.4. In reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. It was clearly mentioned that the entire PPA and all other terms and conditions shall remain unchanged except for change in calculation of Variable charges in Monthly Tariff. The formula for working out the costs was also described as "Proposed Monthly Variable Charge Formula" A Monthly Sample Calculation based on assumed values of landed cost of oil, and dollar rate, was appended to the proposal to show that the cost would be less than what was being paid by the Respondent. When the Respondent accepted the proposal and responded by its letter of 26th of April 2012 which referred to the cost at the rate of Rs. 8.58 per unit, which was described as the " revised fixed rate", the Claimant clarified the position immediately by stating in its letter of 30th of April 2013 to the Respondent that the price mentioned in the proposal dated 21st of March 2013, was not for a fixed cost of power supplied, and that the same shall vary depending upon the fuel price in the market and the exchange rate. They therefore requested the Respondent to confirm that the tariff was formula based and shall vary with changes in the fuel price in the market and dollar variation. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This clearly shows that the Government acted upon the said decision of the Cabinet. 43. For all these reasons, the Tribunal finds that the plea of the Claimant that the Respondent was obliged to pay for the power purchased by it pursuant to the proposal accepted by it, on the basis of invoices prepared and submitted by the Claimant taking into account the variable cost of oil and dollar, must be accepted, and the plea of the Respondent to the contrary, must be rejected. 16.3. Insofar as the contention of State with regard to non-consideration of clauses 12.1.4 to 12.1.7 of PPA is concerned, in our view, the claimant is right in its submission that the main issue raised before the Arbitral Tribunal was only as to whether the agreement was to supply power on a fixed rate of fuel price and fixed rate of exchange in terms of US dollar to Indian rupee. 16.4. It might appear that in the latter part of the pleadings, the Government of Goa referred to the aforesaid clauses 12.1.4 to 12.1.7 of PPA but, fact of the matter remains that they were not as such considered by the parties to be forming material propositions of law or facts so as to form the part of the issue before the Arbitral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l; *** *** *** 'Fuel Supply Contract' shall mean any contract entered into between RSPCL and any Fuel Supplier for the supply of Naphtha pursuant to Clause 12;" 16.5.1. If "Alternate Fuel" is also to be read alongwith "Naphtha" in the aforesaid definition, that would be either re-writing the contract or at least reading something into the contract by stretching the principles of construction of document. This would, in our view, be travelling into the area of such construction of the terms of contract which were not forming the part of the material propositions of fact on which the parties were at variance. As noticed, the core of variance of the parties had only been as to whether the claimant was to supply energy on a fixed rate of fuel and fixed rate of foreign currency after the parties had agreed to the use of alternate fuel. 16.6. We have only broadly referred to the salient features of the dealings between the parties. In fact, not much dilation and dissection of the record is required because the Arbitral Tribunal has indeed examined all the relevant aspects of the matter in necessary details. 16.7. In any case, all documents which showed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has made an Award in an amount of Rs. 24.66 crores (approximately) towards variable charges post the switch of the fuel from Naphtha to RLNG. Such a substantial award has been made without even adverting to, much less considering or evaluating the issue raised by the Appellant about applicability and non-compliance with the contractual clauses 12.1.4 to 12.1.7. This amounts to patent illegality because the Award to that extent can be said to have been made ignoring or even disregarding contractual provisions to be found in clauses 12.1.4 to 12.1.7 of the PPA. The Award to this extent will have to be held as vitiated by patent illegality because Award ignores vital evidence on the issue of applicability and non-compliance with the contractual provisions in clauses 12.1.4 to 12.1.7. 17.2. The High Court has also proceeded to observe and reiterate that interference was being made not because of the Court disagreeing with any interpretation of the contractual clauses by the Arbitrator but because the Arbitrator failed to look into the relevant contractual provisions. The High Court justified its interference while observing as under: "98. According to us, all these predicates are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction. As said by this Court in Associate Builders (supra), if an Arbitrator construes the term of contract in a reasonable manner, the award cannot be set aside with reference to the deduction drawn from construction. The possibility of interference would arise only if the construction of the Arbitrator is such which could not be made by any fair minded and reasonable person. 19. The case of SAL Udyog Private Limited (supra) cited by learned Attorney General is an apposite example as to when the principles governing "patent illegality" come into operation. In that case, in the contract concerning supply of Sal seeds, the Respondent-contractor had continued to operate until 21.12.1998, when the contract was terminated in accordance with the change in legislation. The Respondent thereafter levied a claim for refund of a sum of about 1.72 crore, allegedly paid in excess to the State. The dispute ultimately led to arbitration and an arbitral award was made in favour of the Respondent which was not interfered with Under Sections 34 and 37 of the Act. 19.1. Therein, the specific ground of challenge by the Appellant-State had been that the Arbitrator ignored the binding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent Company raised a dispute and for the first time, claimed refund of the excess amount purportedly paid by it to the Appellant State towards supervision charges incurred for supply of Sal seeds. In our opinion, this is the patent illegality that is manifest on the face of the arbitral award inasmuch as the express terms and conditions of the agreement governing the parties as also the Circular dated 27-7-1987 issued by the Government of Madhya Pradesh have been completely ignored." 19.2. In view of such an error apparent on the face of the record, this Court found the matter to be of patent illegality which was going to the root of the matter and the impugned award, insofar permitting deduction of the supervision charges recovered from the Respondent, was quashed and set aside being in direct conflict with the terms of the contract and the relevant circular. This Court held thus: "26. To sum up, existence of Clause 6(b) in the agreement governing the parties, has not been disputed, nor has the application of the Circular dated 27-7-1987 issued by the Government of Madhya Pradesh regarding imposition of 10% supervision charges and adding the same to cost of the Sal seeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the issue at hand. 21. For the reasons aforesaid, in our view, no ground for challenge Under Sections 34 or 37 of the Act was made out in relation to the award pertaining to variable charges. Hence, the High Court has not been right in setting aside the award relating to variable charges on the ground of so-called non-consideration of clauses 12.1.4 to 12.1.7 of PPA. 21.1. Putting it in other words, the High Court, even while reminding itself of the limitation of jurisdiction, has committed the same error by extensively dissecting the evidence while assuming that clauses 12.1.4 to 12.1.7 were decisive of the matter without taking a close look at the material propositions which formed the dispute and which were presented by the parties before the Arbitral Tribunal. As regards variable charges, the core question before the Tribunal had been as to whether the claimant agreed to supply electricity on fixed charges with fixed rate of foreign currency while using the alternate fuel. This question was essentially to be determined with reference to the new contract that came into existence with exchange of communications between the parties. The Arbitrator precisely decided the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rated Capacity. In regard to this issue, it is more than apparent that the Arbitral Tribunal had considered the provisions of the contract and had taken a particular view thereupon. The Tribunal said, inter alia, as under: "48. An issue was raised at the stage of arguments relating to the down rating the generating capacity of the plant annually commencing from the first year after Commercial Operation of the plant. Such a plea does not appear to have been raised in the Statement of Defence by the Respondent even though it is contended that down rating a small fraction of generating capacity will have a huge impact on the monthly invoices. Learned Counsel for the Claimant brought to the notice of the Tribunal that it was in paragraph 12 of the sur rejoinder that the Respondent sought documents relating to Original Equipment Manufacturer's (OEM) recommendations towards down rating of generating capacity as envisaged in the definition of "Contracted Capacity" which was required to ascertain the implementation of the down rating of the generating capacity in accordance with the recommendations of the Original Equipment Manufacturer. 49. According to the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed into which permitted the Claimant to sell power directly in excess of 39.8 MW to consumers in Goa. After the Claimant commenced commercial operation of the power station on 14th of August 1999, on completion of one year thereafter, a second supplementary agreement was entered into on 20 September 2000 whereunder the Respondent agreed to consent to sale of electricity in full or in part, to the extent of 2000 KW generated at the power station directly to any consumer in Goa. Referring to such other supplementary agreements it was submitted that the earlier definition of the contracted capacity was given a go by, and completely changed. The issue with regard to down rating thus became irrelevant, and in any event by subsequent written agreement, inter alia, amending the earlier agreement, there was no question of any further down rating as alleged. The parties are bound by the contractual provisions. The various supplementary PPAs executed between the parties clearly show that the rated capacity was subsequently reduced to 19.8 MW and the obligation of the Claimant was restricted to assuring supply up to 19.8 MW without any reference to degradation of such capacity. The Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e minutes of the said meeting and the agreement arrived there at, the invoices for the period April 2004 to April 2007 were reconciled and the reconsideration was duly approved by the Respondent and the payment was made on the basis thereof by the Respondent to the Claimant. All future invoices were raised on the basis of the said agreement arrived at the meeting and the invoices were duly approved by the Respondent and have been paid by the Respondent for the period up to March 2013 and a part of April 2013. In the circumstances, therefore, the issue relating to the down rating of capacity of the plant appears to have been settled between the parties, and should not be allowed to be re-agitated in this proceeding. This claim is accordingly, rejected." 23.3. The Arbitral Tribunal thus held that the issue relating to downrating of capacity was settled between the parties and the parties should not be allowed to reagitate the same. 24. As regards this issue of downrating, again, we find that the High Court has found shortcomings in the discussions of the Arbitral Tribunal as regards the meaning and effect of the certificate dated 08.11.2005 and as to whether the claimant could have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Appellant on the issue of downrating and proceeds to make an award of Rs. 18.53 crores in favour of the Respondent is liable to be set aside on the ground of perversity and patent illegality." 24.1. In regard to this issue, in our view, the High Court has again travelled beyond its jurisdiction Under Section 37 and rather than remaining within the confines of consideration Under Section 34 of the Act, has entered into the arena which is exclusively within the Arbitrator's domain. What the Arbitral Tribunal has held in regard to this item had exclusively been its view on the evidence on record and the relevant surrounding facts/factors. The view so taken by the Arbitral Tribunal cannot be said to be wholly perverse or suffering from patent illegality so as to be interfered with. Needless to observe that even if two views are possible, the Court cannot substitute its own view with that of the Arbitral Tribunal. 25. The questions raised by the learned Attorney General, in relation to the issue concerning downrating, that adverse inference ought to be drawn against the claimant for failure to produce OEM recommendations, are only pertaining to the principles of appreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e result would only be of making every award susceptible to challenge before the Court on those very grounds which are, otherwise, of appeal or revision and which are not permitted by the legislature to be taken Under Section 34 of the Act of 1996. 26. Having found the two major issues dealt with by the High Court not standing within the confines of limited jurisdiction Under Section 34 of the Act of 1996, we may again observe that the approach of the High Court in relation to the other two comparatively minor issues relating to variable charges on 4MW power and netting-out principles is also suffering from the same error, where the High Court has deeply analysed the evidence on record to hold that the Arbitral Tribunal has not been correct in its propositions or inferences. The award relating to variable charges on 4 MW power 27. The Arbitral Tribunal examined the documentary evidence, viz. letters exchanged between the parties dated 02.01.2009 and 19.01.2009 and came to a finding that State was not justified in its submission that the available capacity of the plant stood reduced. 28. In this item too, the High Court has reinterpreted the said communications dated 02.01.2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence on record. The Arbitral Tribunal had drawn the particular conclusion on the basis of notes dated 13.09.2014 and 18.09.2014. The Arbitral Tribunal considered the documentary evidence before it, as well as the provisions of the contract relating to supply of backup power by Government of Goa to the claimant when the power station was under shutdown for the period May 2014 to August 2014. The Arbitral Tribunal further referred to the communications which also include the decision of the Government of Goa as to the rate at which power during the shutdown period was to be supplied to the claimant and on this basis, came to the finding that a fixed rate which was not to be multiplied as per the provisions of the PPA was agreed between the parties. The award also gave reasons for such finding. Even if it be assumed that another view is possible, it cannot be said that the Arbitral Tribunal has taken such a view which no fair-minded and reasonable person could have ever taken. 31. The High Court has again justified its interference in this item in the following terms: "148. According to us, the impugned Award on the aspect of netting out is again vitiated by perversity and patent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erfered with the award of interest for the pre-reference period and the period during which the proceedings were pending before the Arbitral Tribunal. In our view, the State is not right in contending that the interest could not have been awarded during the period of reference to the Arbitrator. In regard to this aspect, the submissions to the effect that pre-reference period interest was not based on any compelling reasons and contractual provisions for interest were in terrorem are liable to be discarded, could only be rejected for being not even standing within the periphery of Section 34 of the Act of 1996. 33. However, insofar as post-award period is concerned, the High Court has reduced the rate of interest from 15% to 10% by following the decision of this Court in the case of Vedanta Ltd. (supra). The High Court has relied on the principles of proportionality and has scaled down the rate of interest to 10% p.a. while observing as under: "175. Mr. Bhat handed in a statement indicating the interest rates (Benchmark Prime Lending Rates) of the State Bank of India. For the period 2017-18, the rates indicated range around 13 to 14% per annum. This is no doubt one of the factor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contrary, as has been submitted before us as well as the High Court, the prevailing interest rate being the prime lending rate of State Bank of India was in the range of 13% to 14% per annum. Thus, the Arbitral Tribunal was justified in granting interest at the rate of 15% per annum post-award. In our view, the Arbitral Tribunal was well within its jurisdiction Under Section 31 of the Act to award interest at the rate of 15% p.a. and there was no justification to reduce the same to 10% p.a. We may observe with respect that the High Court was not exercising any equity jurisdiction so as to resettle the rate of interest as deemed fit by it. It had been a matter relating to an award made by the Arbitral Tribunal in a commercial dispute. Final comments, observations, and conclusion 35. In the foregoing discussion, we have not elaborated on the discussions and findings of the Commercial Court in its order dated 12.09.2019. Instead, we have directly dealt with the consideration of the High Court vis-à-vis the award in question. As noticed, the High Court could only be said to have misdirected itself on the major issues concerning merits of the award. However, before conclud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein cabinet note was considered on merits but it was held that the cabinet note was only to make budgetary provision. Without prejudice Ld. Advocate General also submitted that even if the cabinet note was to be considered it could at the most be for an amount of Rs. 0.76 paise increase and nothing more than that. In the present case subsequent conduct of GOG in making payments based on variable fuel price shows that they implemented the said cabinet decision. In the present case even if the said cabinet note is considered to be internal note, it will have to be considered because GOG accepted variable fuel price and also made payments. Making of payments thereafter are variable factors which distinguish the above two judgments. For the reasons mentioned above, Point No. 1 is answered in the Affirmative. 36. The narrow scope of "patent illegality" cannot be breached by mere use of different expressions which nevertheless refer only to "error" and not to "patent illegality". We are impelled to reiterate what has been stated and underscored by this Court in Delhi Airport Metro Express (supra) that restraint is required to be shown while examining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the High Court, which modifies the award dated 16.02.2018 and the order of the Commercial Court dated 12.09.2019, is set aside and consequently, the award in question is restored in its entirety. 40. The appeal filed by the claimant is allowed accordingly and that filed by the State is dismissed. No costs. 1Hereinafter also referred to as 'the claimant'. 2Hereinafter also referred to as 'the State' or 'the Government of Goa'. 3Hereinafter also referred to as 'the Act of 1996' or simply 'the Act'. 4Hereinafter also referred to as 'the Commercial Court'. 5'PPA', for short. 6'RLNG', for short. 7'JERC', for short. 8'FSC', for short. 9'OEM', for short. 10Subs. by Act 3 of 2016, Section 14, for Sub-section (3) (w.r.e.f. 23-10-2015). Sub-section (3), before substitution, stood as under: (3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.". 11 Subs. by Act 33 of 2019, sec 7, for "furnishes proof that" [w.e.f. 30-8-2019, vide S.O. 3154(E), dated 30th August ..... X X X X Extracts X X X X X X X X Extracts X X X X
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