M/S Jindal Itf Limited vs Ntpc Limited & Anr.
- Court
- Delhi High Court
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 26 May 2026
Pronounced on: 2 September 2026
# CNR No. DLHC010160052025
+ FAO(OS) (COMM) 45/2025
M/S JINDAL ITF LIMITED .....Appellant
Through: Dr. A. M. Singhvi and Mr.
Jayant Mehta, Sr. Advs. with Mr. Nilava
Bandyopadhyay, Mr. Kumar Shashwat
Singh Sawno, Mr. Yash Mittal, Ms. Surabhi
Rana and Mr. Om Shelat, Advs.
versus
NTPC LIMITED & ANR. .....Respondents
Through: Mr. Tushar Mehta, SG with Ms.
Bani Dixit, Mr. Adarsh Tripathi, Mr. Vikram
Singh Baid and Mr. Ajitesh Garg, Advs.
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
HON'BLE MR. JUSTICE OM PRAKASH SHUKLA
JUDGMENT
% 02.09.2026
C. HARI SHANKAR, J.
Facilitative Index to the Judgment
S. No. Subject Para Nos
1 A Facts 1 – 24
2 B Scope of Interference under section 34 and
section 37
25 – 26.6
3 Section 34 26- 26.4
4 Associate Builders v.DDA 26.4 (i)
5 Ssangyong Engineering & Construction Co Ltd
v. NHAI
26.4 (ii)
Signature Not Verified
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KUMAR
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6 MMTC Ltd v. Vedanta Ltd 26.4 (iii)
7 PSA Sical Terminals (P) Ltd v. V O
Chidambranar Port
26.4 (iv)
8 Delhi Metro Rail Corporation v. Delhi Airport
Metro Express (P) Ltd
26.4(v)
9 OPG Power Generation (P) Ltd v. Enexio Power
Cooling Solutions (India) (P) Ltd
26.4 (vi)
10 Prakash Atlanta (JV) v. National Highway
Authority of India
26.4(vii)
11 Cumulative Takeaway 26.5 - 26.6
12 C Findings of the learned Arbitral Tribunal,
decision of the learned Single Judge, rival
contentions and analysis thereof
27- 40
13 C.I. Re. Claim No.1 – NTPC is responsible and liable
for the delays and deviations (from Tender) in
Construction Completion of Material Handling
System Phase-I and II and JITF is entitled to an
amount of Rs. 424,08,00,423 /-
28 - 30.23
14 Discussions and findings by the learned AT 28.1 –28.3
15 The impugned judgment of the learned Single
Judge
29 - 29.2
16 Analysis 30 - 30.23
17 C.II Re. Claim Nos.3 and 3A - “NTPC breached its
obligation to provide MGQ at Transfer Point for
First and Second Years of Operation Period and
JITF is entitled to amount of ₹ 158,50,05,003/-
towards MGQ amount for First Year Operation
Period and ₹ 197,81,13,512/ towards MGQ
Amount for Second Year Operation Period.
31 - 35
18 Rival Submissions before the learned Arbitral
Tribunal
31.1 - 31.13
19 Analysis by learned Arbitral Tribunal 32 - 32.15
20 The Impugned Judgment 33 - 33.5
21 Analysis 34 - 34.18
22 C.III Re. Claim 5A - NTPC's Consultation Notice,
Termination Notice and Requisition Notice are
illegal, invalid, non-est and of no effect
whatsoever
36 - 38.18
23 Findings of the learned Arbitral Tribunal 36.1 - 36.10
24 Impugned judgment of the learned Single Judge 37 - 37.5
25 Analysis 38 - 38.18
26 Fateh Chand 38.3 - 38.3.2
27 Maula Bux 38.4 - 38.4.2
28 ONGC 38.5 - 38.5.3
29 C.IV Re. remaining Claims 39 - 40
30 D Conclusion 41 - 43
Signature Not Verified
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KUMAR
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A. Facts
1
1. The Inland Waterways Authority of India develops and
regulates inland waterways in the country.
2. On 24 September 2008, a Memorandum of Understanding was
2
executed between the National Thermal Power Corporation and
IWAI, to explore a possibility of use of inland waterways to transport
coal from the jetty where it was unloaded, to the Farakka Thermal
3
Power Plant of NTPC.
4
3. On 11 August 2011, a Tripartite Agreement was executed
5
among NTPC, IWAI and Jindal ITF Limited . A draft Coal
6
Transportation Agreement was also incorporated as part of the TPA.
The TPA required JITF to build a Coal Unloading System like a jetty,
grab, etc. as well as a Material Handling System like conveyor belts.
These two systems were referred to, comprehensively, as the Coal
7
Unloading and Material Handling System . The CUMHS was required
to be completed in two phases. The first phase spanned a period of 15
months and the second spanned 24 months, reckoned from the date of
signing of the TPA, i.e., from 11 August 2011. These phases were to
be executed parallelly with each other. Phase I was, therefore, to be
completed by 10 November 2012 and Phase II by 10 August 2013.
4. The following clauses of the TPA are of relevance, to the issues
1
“IWAI”, hereinafter
2
“NTPC”, hereinafter
3
“FTPP”, hereinafter
4
“TPA”, hereinafter
5
“JITF”, hereinafter
6
“CTA”, hereinafter
7
“CUMHS”, hereinafter
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in controversy:
1.1 "COD" or "Commercial Operation Date" means Date on
which Operator receives the Completion Certificate in relation to
the Material Handling System Phase-II in accordance with the
terms of the Agreement.
1.4 Ambiguities within the Agreement
In case of ambiguities or discrepancies within this Agreement, the
following shall apply:
(a) Between two Articles of this Agreement, the
provisions of specific Articles relevant to the issue under
consideration shall prevail over those in other Articles;
(b) Between the Articles and the Annexures, the Article
shall prevail, save and except as expressly provided in the
Articles or the Annexures;
(c) Between the dimension scaled form the drawing its
specific written dimension, the latter shall prevail; and
(d) Between any value written in numerals and that in
words, the latter shall prevail.
(e) Between the provisions of this Agreement and any
other documents forming part of this agreement, the former
shall apply.
2.2 Scope of Work
(b) formulate and implement a detailed plan in accordance with
which: (1) the coal would be unloaded and transferred from ocean
going vessels (Panamax/ Capesize) to barges at the suitable
locations that are identified as being suitable for such unloading
from the ocean going vessels to barges by the Operator (such
location. being referred to as "Transfer Point"), (2) the mechanism
to be used at the Transfer Point for the unloading and transferring
the coal from ocean going vessel to barges ("Transshipment
Infrastructure"), (3) provide adequate number of barge of suitable
specifications to meet movement schedule of designated quantities
of imported coal as per the requirement of NTPC, (4) unloading
system of adequate capacity and suitable for the Material Handling
System specified under Schedule E of Tripartite Agreement
("Unloading Infrastructure") that would be used at the Farakka TPP
waterfront for unloading of coal from barges onto the Conveyor
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KUMAR
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Belt System that would transfer and deliver the coal from the
Unloading Infrastructure to the coal stack yard of the Farakka TPP
in accordance with the Schedule E of this agreement ("Material
Handling System") and (5) such other details necessary to ensure
complete logistics plan for the delivery of the coal from the ocean
going vessel to the coal stackyard of the Farakka TPP
("collectively hereinafter referred as the Coal Hauling Plan");
(c) construct Material Handling System of Coal Hauling Plan
in two phases and, in accordance with Schedule E of this
Agreement:
(i) Phase I would include the construction and
operation of Conveyor Belt. system comprising Conveyor
Belt A, Conveyor Belt B and Conveyor Belt C through
junction house JH-1 and JH-2. Operator shall provide and
implement the Unloading Infrastructure and Material
Handling System Phase-I, that would be in operation for
approximately nine (9) months ("Material Handling
System-Phase-I Period") for unloading transportation and
delivery of minimum 2 MMTPA of coal inside the coal
stack yard and thereafter utilized in Coal hauling plan upon
completion of Phase-II of Material handling System for
unloading, transportation and delivery of 3 MMTPA coal
inside the coal stack yard. Operator shall ensure that
operation through Phase-I shall commence not later than
fifteen (15) months from the date of execution of this
Agreement.
(ii) Phase-II would include construction and operation
of Conveyor Belt D, Conveyor Belt E Conveyor Belt. F and
Conveyor Belt G through Junction houses JH-3, JH-4, JH-5
& JH-6. Operator shall ensure that operation, through this
mode shall commence not. later Twenty Four (24) months
from the date of execution of this Agreement.
(d) Undertake all measures required to implement the Coal
Hauling Plan, pursuant to the terms of this Agreement, which shall
include:
(i) Enabling the commencement of unloading,
transportation and delivery inside the coal stack yard
through Material Handling System as per the schedule
below. All time lines shall be counted from the date of
execution of Tripartite. Agreement between the selected
operator, NTPC and IWAI.
A. Phase I: Within 15 months
B. Phase II: Within 24 months
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KUMAR
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(ii) arrange, procure and ensure the provision of suitable
equipment and/or facilities required for unloading the coal
from the ocean going vessels to the barges at the Transfer
Point in accordance with the Coal Hauling Plan;
(iii) procure and operate sufficient number of barges to
ensure the due unloading from ocean going vessel and
transport through IWT mode using NW-1 channel upto
Farakka as per the quantity schedule given below:
A. Phase I: 2 ΜΜΤΡΑ.
B. Phase II: 3 ΜΜΤΡΑ
(iv) design, construct, finance, operate and maintain the
Unloading Infrastructure at the land provided by NTPC on
the waterfront in or near the Farakka TPP, that would
unload coal from the barges and place it on the Material
Handling System in accordance with the Coal Hauling Plan.
The design and construction of the Unloading Infrastructure
will have to ensure that it shall have an operating life
equivalent to the operating life of the Material Handling
System (developed as per Standards and Specification of
Material Handling System provided in Schedule E of this
agreement). The Unloading Infrastructure shall be
transferred to NTPC at Re 1 (one)/- at the end of the
Operation Period in accordance with the terms of the
Tripartite Agreement
(v) design, construct, finance, operate and maintain the
Material Handling System (both Phase-1 and Phase-II)
from the point of unloading at waterfront to coal stack yard
of Farakka TPP, in accordance with the Standards and
Specification of Material Handling System provided in
Schedule E of this agreement, that would enable the
movement of coal from Barge unloading point directly to
coal stack yard. The coal should not be stacked anywhere
outside the coal stack yard of Farakka TPP. The Material
Handling System developed in two phases as stipulated in
Article 2.2 (c) as per the specification of NTPC and shall be
transferred to NTPC, at Re 1 (one)/-, at the end of the
Operation Period in accordance with the terms of this
agreement.
It is hereby clarified that the Operator shall not use or install any
second hand or used items in the Design, construction, operation
and maintenance of the Unloading Infrastructure and Material
Handling System as provided in this sub-clause 2.2 (d) (iv)& 2.2
(d) (v) above.
Signature Not Verified
Digitally Signed By:AJIT
KUMAR
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2.3 Operation Period
The Operation Period of the Coal Hauling Plan shall commence
from the COD and shall extend to a period of 7 (seven) years, or
till termination of this Agreement in accordance with its terms.
Article 3.1 (c)(ii) Procured all the Applicable
Permits/Licenses/Clearances unconditionally or if subject to
conditions then all such conditions shall have been satisfied in full
and such Applicable Permits/Licenses/Clearances are kept in full
force and effect during the construction and operation of the
Project.
Article 7.1
7.1 Obligation
The obligations of IWAI, NTPC and Operator shall be as under:
(a) Obligation of NTPC
(i) Provide 2 MMTPA of coal during Material
Handling System-Phase-I Period to be transported through
Inland Waterways Transport (IWT) from Transfer Point to
coal stack yard of Farakka Power Plant
(ii) Guarantee minimum quantity of 3 MMT per annum
of coal during Operation Period to be transported through
Inland Waterways Transport (IWT) from Transfer Point to
coal stack yard of Farakka Thermal Power Plant in
accordance with terms of this agreement.
(iii) NTPC through their Imported Coal Supplier shall
ensure delivery of coal at Transfer Point on Fairly Evenly
Spread (FES) basis. NTPC will fumish to Imported Coal
Supplier (ICS) a quarterly schedule of quantity with a
tentative month wise break up proposed to be delivered at
the Power station. ICS and Operator shall coordinate and
distribute the quarterly coal supplies in all the months of a
quarter.
(iv) To buy back the Unloading Infrastructure and
Material Handling System at Re 1/- (one) lumpsum transfer
price after expiry of this Agreement due to efflux of time or
as per clause. 14.1 (c) due to early termination of this
agreement as the case may be.
(v) Facilitate in obtaining the electricity connection at
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KUMAR
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single point at Project Site on chargeable basis for the
construction of Project Assets.
(vi) To provide electricity at a single point at Project
Site free of cost only during the operation of Project Assets.
(vii) Ensure that Imported Coal Supplier executes the
Transport Contract with Operator.
(viii) Include the Transport Contract as specified in
Schedule B to this Agreement, in the Main tender
Document for Coal Import,
(ix) Approve the Standard Operating Procedures (SOP)
for operation and maintenance of Project Facilities.
(b) Obligation of IWAI
To provide:
(i) Navigation infrastructure in the form of
dredging and maintenance of the navigation channel
and provision of night navigation infrastructure as
may be needed for smooth operation of barges.
(ii) Least Available Depth (LAD) of 2.5 meters
from Haldia upto Farakka
(iii) provide night navigation for 24 hrs operation
of barges, markings and other navigational aids
DGPS etc
(iv) Maintain and guarantee the above facilities
over a period of 7 years
(v) Make available existing IWT facility at
Haldia in case of exigency on chargeable basis
(vi) to extend all necessary assistance in the form
of sharing information and providing necessary
inputs and data to Parties
(vii) monitor the entire process jointly with
NTPC wherever required
(viii) traffic management with priority to the
traffic with destination for NTPC Power Plant
(ix) issue fortnightly information on the critical
parameters of the channel.
(x) in case of navigational distress/emergency
such as engine failure or collision with another
vessel IWAI to arrange necessary help by diverting
its nearest vessel for assistance on chargeable basis
(c) Obligation of Operator
(i) Fulfill entire Project Requirements and Scope of
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Work as stipulated in Article 2.2;
(ii) ensure coal transportation through IWT for target
quantity to NTPC power site in time from midstream
unloading point to coal stack yard of Power Plant;
(iii) Transfer the. Unloading Infrastructure and Material
Handling System at Re 1/-(Lumpsum Transfer price) to
NTPC after expiry of this agreement due to efflux of time
or as per clause 14.1 (c) due to early termination of this
agreement as the case may be
(iv) Operate and maintain Unloading infrastructure &
Material Handling System for the Term of this Agreement;
(v) bear and pay all wharfage, anchorage and any other
charges levied by KoPT for Traneshipmant Mechanism at
the Transfer Point; KoPT has approved a concessional
wharfage charge on coal of Rs. 15 PMT plus service tax
and. Nil anchorage charge on mother vessel/ transloader/
daughter vessel/barges for this project for 3 MMTPA of
coal for a period of 7 years.
With regard to operation of Transhipment Infrastructure in
the area West of Sandheads in the vicinity of Lat. 21°00' to
21° 33' and Long. 87° 10' notified by KoPT as waters under
their limits of port, it may be noted that in case the operator
has to pay charges in excess of the concessional charges (as
detailed in letter attached as Annexure-V of the Addendum
issued on 18th Feb 2011) to State Government,
Government agencies or any other Port Trust, such
additional charges shall be reimbursed to the Operator
(vi) bear and pay all cost, taxes, expenses and charges in
connection with or incidental to the performance of the
obligations under this Agreement;
(vii) comply with all applicable laws and obtain all
applicable permits in all material respects. The Operator
shall follow all the applicable rules, regulation, and/or any
notification/order of KoPT in relation to operation of
transhipper and plying of barges in KoPT waters including
but not limited to barges need to have specified speed,
comprehensive insurance for wreck removal and third party
liability, onboard VHF sets and all vessels should have
plying certificate from appropriate authority as per their
respective plying area.
(viii) Develop Standard Operating Procedures (SOP) for
operation and maintenance of Project Assets in discussion
with NTPC;
(ix) take adequate preventive measures to comply with
safety and security standards of NTPC as well as local
Statutory Authority at own cost and expense.
7.3 NTPC's Minimum Guaranteed Coal Obligation
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KUMAR
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NTPC hereby assures and represents to the Operator that it shall
during each year of the Operation Period, utilise the Project for
transportation of a minimum quantity of 3MMT per annum of coal
(such quantity being referred to as "Minimum Guaranteed
Quantity", MGQ), and further that it shall pay the Operator for the
transportation of the 90% of Minimum Guaranteed Quantity, if the
actual coal quantity made available by NTPC for the Project in a
year is less than 90% of Minimum Guaranteed Quantity in
accordance with the provisions of this Article. For avoidance of
doubt, the provision of Minimum Guaranteed. Quantity shall not be
in effect during Material handling System-Phase-I period.
Within three (3) weeks of the end of each period of twelve months
of operations of the Project. the Operator shall submit to NTPC a
statement ("Annual Statement") providing:
(a) Computation of the total quantity of coal supplied to
Farakka TPP using the Project in the preceding twelve
month period
(b) "Shortfall Quantity" because of NTPC's default.
(Difference between the quantity actually made available
by NTPC for Project during the respective 12 month period
and 90% of MGQ)
(c) Computation of "Excess Quantity" (Difference
between the quantity actually made available by NTPC for
Project during the respective 12 month period and MGQ)
(d) Computation of the "MGQ Amount" payable to
operator, in case of Shortfall Quantity. It shall be calculated
by multiplying the Shortfall Quantity with the 75% of
Project Rate applicable on the last day of the period of the
Annual Statement in which respective Shortfall quantity is
reported.
The Annual Statement would be submitted to NTPC together with
the supporting documentation and calculations. The MGQ Amount
will be paid to Operator directly by NTPC. The MGQ Amount will
be payable on submission of a Bank Guarantee of equivalent value
by the Operator in the format to be provided by NTPC. NTPC
shall, within a period of thirty (30) days, make payment of the
MGQ Amount as specified in the Annual Statement.
Provided however, NTPC is allowed to adjust MGQ Amount
already paid / payable in any year under this provision of the
agreement against the excess quantity of coal provided above
MGQ (3 MMTPA) in any subsequent/earlier years of operations
during the tenure of this agreement.
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KUMAR
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The Excess Quantity shall be adjustable against the shortfall
quantity during the tenure of the project. The operator shall refund
the MGQ amount, if paid earlier, proportionate to the Excess
Quantity OR adjust Excess Quantity accrued earlier with the
Shortfall Quantity, as the case may be. For refund purposes, the
rates shall be same at which MGQ amount, was paid to the
operator. The refund shall be made by the operator to NTPC within
30 days of approval of Annual Statement by NTPC and on receipt
of such refund NTPC shall allow the Operator to reduce the value
of Bank Guarantee by the amount of refund.
The Bank Guarantee shall be returned by NTPC after the
settlement of last Annual Statement at the end of the Term of
Agreement.
Provided however, in the event that NTPC raises an objection to
the determination of the MGQ Amount as specified in the Annual
Statement it shall, within a period of three weeks from the
submission of the Annual Statement:
(a) notify the Operator of its dispute to the MGQ
Amount,
(b) within a period of one week from such dispute
notice, submit a written submission of its dispute to
Operator providing the specific grounds and calculations
and documents relating to the dispute being raised and
(c) make the payment of the entire MGQ Amount to the
Operator, under the condition that if the dispute is resolved
in favour of NTPC, then the Operator would refund the said
amount together with interest applicable at the then
prevailing SBI base rate plus 6.75% (six and three quarters
percent).
It is clarified that no dispute raised by NTPC would be valid until
NTPC has made the payment of the MGQ Amount pursuant to this
sub-clause (c).
It is clarified that if NTPC fails to notify a dispute on the MGQ
Amount within three weeks of receipt of the Annual Statement, it
shall be deemed to have accepted the same and no disputes
thereafter in relation to an Annual Statement would be valid under
this Agreement.
Article 8.8
8.8: Delay in Construction Completion and Liquidated
Damages therein
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KUMAR
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Subject to any of the provisions of this Agreement providing for
extension of time for performance or excuse from performance, as
the case may be, of any of the obligations of the Operator under
this agreement, the Operator shall pay to NTPC liquidated damages
at the rate of 0.1% (zero point one percent) of the performance
Guarantee for every day delay in fulfilling the specified obligations
on or before a milestone date. Provided such liquidated damages
shall not exceed 5% (five percent) of the normative cost (Rs. 90
crores). In case the aggregate delay exceeds 180 (one Hundred and
eighty days) or the aggregate liquidated damages paid and/or
payable under this provision exceeds the specified limit of 5%
(Five Percent) of the Normative cost (Rs. 90 crores), NTPC shall
be entitled to terminate this agreement and consequences of
Termination as laid down in Article 13.
ARTICLE 12: EVENTS OF DEFAULT
Event of Default means the Operator Event of Default or NTPC
Event of Default or IWAI Event of Default or /and, as the context
may admit or require.
12.1 Events of Default
(a) Operator Event of Default
The Operator Event of Default means any of the following
events, unless such an event has occurred as a consequence
of a Force Majeure Event (referred to as the "Operator
Event of Default"):
(i) the Operator's failure to perform or
discharge any of its obligation under this Agreement
(ii) the Operator's failure to perform or
discharge any of its obligation under any other
Transaction Document, which has or is likely to
have a Material Adverse Effect on the Project;
(iii) the Operator is deemed to commit a Material
Breach of this Agreement including, and not limited
to breach of its obligations relating to proper
handling of cargo and if such breach is not cured by
the Operator within the specified cure period or if
not so specified within ninety (90) days of NTPC's
notice to the Operator specifying such breach and
requiring the Operator to remedy the same;
(iv) the Operator fails to achieve transportation
of 90% of Minimum Guaranteed Cargo for reasons
not attributable to NTPC/IWAI
(v) any representation made or warranties given
by the Operator/Consortium Members/Preferred
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KUMAR
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Bidder under this Agreement is found to be false or
misleading;
(vi) levy of an execution or restraint on the
Operator's assets which has or is likely to have
Material Adverse Effect on the Project and such
execution or restraint remaining in force for a
continuous period exceeding sixty (60) days;
(vii) the Operator engages or knowingly allows
any of its employees, agents, Subcontractor agent or
representative to engage in, in the course of any
activity undertaken pursuant to this Agreement, any
activity prohibited by law or which constitutes a
breach of or an offence under any law, for the time
being in force in India;
(viii) the Operator repudiates this Agreement or
otherwise takes any action or evidences or conveys
an intention not to be bound by this Agreement;
(ix) the Operator has delayed payment that has
fallen due under this Agreement beyond the
specified time period or if not so specified beyond
ninety (90) days of the due date;
(x) the Operator is adjudged bankrupt or
insolvent;
(xi) the Operator does not attend to or abandons
the Project for a continuous period of 7 (seven)
days;
(xii) As a result of any act or omission of the
Operator, any Lender enforces or initiates measures
to enforce any Security Interest over any of the
assets of the Operator, or the shares of the Operator
owned by the Preferred Bidder
(xiii) As a result of any act or omission of the
Operator, a. Competent Authority expropriates,
confiscates, seizes, nationalizes or compulsorily
acquires any of the assets of the Operator or the
shares of the Operator owned by the Preferred
Bidder;
(xiv) The occurrence of a breach identified as an
event of default under any Transaction Documents,;
(b) NTPC Event of Default
NTPC Event of Default means any or all of the following
events, unless such an event has occurred as a consequence
of a Force Majeure Event (referred to as the 'NTPC Event
of Default"):
(i) Fails to perform or discharge any of its
obligation in accordance with provisions of this
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KUMAR
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agreement unless such failure has occurred as a
consequence of any Operator Event of Default or
Force Majeure Event;
(ii) fails to perform or discharge any of its
obligation under any other contract, which has or is
likely to affect the Project/Project Assets,
materially;
(iii) fails to fulfill its obligation under Article 7.3
make the payment for the minimum guaranteed coal
obligation;
(iv) any representation made or warranties given
by NTPC under this Agreement is found to be false
or misleading;
(v) any defect in land title, ownership and
possession of the Project Site.
(c) IWAI Event of Default
IWAI Event of Default means any of the following events,
unless such an event has occurred as a consequence of a
Force Majeure Event (referred to as the "IWAI Event of
Default"):
(i) Fails to perform or discharge any of its
obligation as stipulated in Article 7.1 (b) unless
such failure has occurred as a consequence of any
Operator Event of Default or Force Majeure Event.
12.2 Rights of Parties
(a) Upon the occurrence of the Operator Event of
Default, NTPC shall without prejudice to any other rights
and remedies available to it under this Agreement or law,
be entitled to terminate this Agreement.
(b) Upon the occurrence, of NTPC Event of Default,
the Operator shall without prejudice to any other rights and
remedies available to it under this Agreement, be entitled to
terminate this Agreement.
(c) Upon the occurrence of IWAI Event of Default, the
Operator shall without prejudice to any other rights and
remedies available to it under this Agreement, be entitled to
terminate this Agreement.
(d) Provided that before proceeding to terminate this
Agreement, the Party entitled to do so shall give due
consideration and shall have due regard to the nature of the
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underlying Event of Default, its implication on the
performance of the respective obligations of Parties under
this Agreement and the circumstances in which the same
has occurred.
12.3 Consultation Notice
Either Party exercising its right under Article 12.2, shall
issue to the other Party a notice in writing specifying in
reasonable detail the underlying Event of Default(s) and
proposing consultation amongst the Parties and the I enders
to consider possible measures of curing or otherwise
dealing with the underlying Event of Default (referred to as
the "Consultation Notice").
12.4 Remedial Process
Following the issue of Consultation Notice by either Party,
within a period not exceeding ninety (90) days or such
extended period as they may agree (referred to as the
"Remedial Period") the Parties shall, in consultation with
the Lenders, endeavor to arrive at an agreement as to the
manner of rectifying or remedying the underlying Event of
Default.
12.5 Obligations during Remedial Period
During the Remedial Period, the Parties shall continue to
perform their respective obligations under this Agreement
which can be performed, failing which the Party in breach
shall compensate the other Party for any loss or damage
occasioned or suffered on account of the underlying
failure/breach.
12.6 Revocation of Consultation Notice
If during the Remedial Period the underlying Event of
Default is cured or waived or the Parties agree upon any of
the measures set out in Article 12.4, the Consultation
Notice shall be withdrawn by the Party who has issued the
same.
12.7 Termination Due to Events of Default
If before the expiry of the Remedial Period, the underlying
Event of Default is neither cured nor waived nor the Parties
and the Lenders have agreed upon any of the measures in
accordance with Article 12.4, the Party who has issued the
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Consultation Notice shall have the right, to terminate this
Agreement.
3.2(b) In the event: (a) IWAI/NTPC, do not procure fulfilment of
any or all the Conditions Precedent set forth in Articles 3.1 (a) and
3.1(b) within the period specified in respect thereof, and (b) the
delay has not occurred as a result of breach of this Agreement by
the Operator or due to Force Majeure, "IWAI/NTPC", shall
compensate the Operator by suitably extending the COD for the
Project and commencement of transportation through Material
Handling System Phase-I without any penalty, as applicable.
ARTICLE 13: TERMINATION/EXPIRY OF AGREEMENT
13.1 Termination Procedure
NTPC and Operator entitled to terminate this Agreement
either on account of a Force Majeure Event or on account
of an Event of Default shall do so by issue of a notice in
writing (referred to as the "Termination Notice") to the
other Party and simultaneously deliver a copy thereof to the
Lenders. The Termination Notice shall be for a period of
ninety (90) days (referred to as the "Termination Period")
and at the expiry of which, this Agreement shall stand
terminated.
13.2 Obligations during Termination Period
During Termination Period, the Parties shall where
applicable to the provisions of Article 13, continue to
perform such of their respective obligations under this
Agreement which are capable of being performed.
13.3 Requisition
Upon issue or receipt, as the case may be, of the
Termination Notice, either as a consequence of a Force
Majeure Event or as a consequence of an Event of Default,
NTPC shall by a notice in writing (referred to as the
"Requisition") call upon the Operator to furnish the
following information to enable NTPC to estimate the
outstanding liabilities/assets of the Operator and/or to
finalize the assets to be handed over to/taken over by
NTPC:
(a) the progress, stage and manner of
implementation of the Unloading Infrastructure and
Material Handling System and the details of the
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assets and liabilities of the Operator;
(b) data or records (to be specified by NTPC)
regarding the establishment, operation and
maintenance of the Project Assets;
(c) Specifications regarding the Operator's
assets comprised in the Project Assets; and
(d) any other information or records (to be
specified by NTPC) regarding Operator and the
Persons claiming through or under the Operator,
its/their business, assets and liabilities;
(e) the particulars of Contractual Arrangements
and the details of functioning of the Subcontractors;
and
(f) the particulars of the Security Interests
supported by Lenders' certificate.
The Operator shall within a period of thirty (30)
days of receipt of Requisition furnish the particulars
called for by NTPC.
13.4 Condition Survey
(a) The Operator agrees that on the service of a
Termination Notice or six (6) months prior to the expiry of
the Operation Period by efflux of time, it shall conduct or
cause to be conducted, by an Expert under NTPC's
supervision, a condition survey of the Project Assets to
ascertain the condition thereof, verifying compliance with
the Operator's obligations under this Agreement and to
prepare an inventory of the assets comprised in the Project
Assets.. During this period, the designated key personnel of
NTPC shall be associated with the operation of Project
Assets wherever required (except when the same is
impossible due to a Force majeure Event) in order to
facilitate smooth takeover of the same by NTPC on the
Transfer Date
(b) If, as a result of the condition survey, NTPC shall
observe that the Project Site and/or the Project Assets or
any part thereof has/have not been operated and maintained
in accordance with the requirements thereof under this
Agreement (normal wear and tear excepted) the Operator
shall, at its cost and expenses, take all necessary steps to put
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the same in good working conditions before the Transfer
Date.
(c) In the event the Operator fails to comply with the
provisions of this Agreement; NTPC may itself cause the
condition survey and inventory of Project Assets. NTPC
shall be compensated by the Operator for any costs incurred
in conducting such survey and preparation of inventory as
also in putting the Project Assets in good working
condition.
13.5 Consequences of Termination
Without prejudice to any other consequences or
requirements under this Agreement or under any law, the
following consequences shall follow upon expiry of the
Operation Period by efflux of time or termination of this
Agreement due to an Event of Default or a Force Majeure
Event:
(a) Transfer of Assets
(i) On the Transfer Date, the Operator
shall subject to the provisions of this
Agreement:
(A) transfer and deliver, to
NTPC or its nominated agency, the
Possession of the Project Site along
with all built up structures, built up
areas a buildings constructed on,
over, at or under it and its right, title
and interest therein and thereto;
(B) transfer and deliver, to
NTPC or its nominated agency, the
Project Asset and all its rights, titles
and interests therein and execute
such deeds and documents, as may
be necessary for the purpose and
complete all legal or other formalities
required in this regard;
(C) hand over to NTPC or its
nominated agency all documents
including as-built drawings, manuals,
designs, documents, information and
records relating to the built up
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structures, built up areas and
buildings on, over, at or under the
Project Site;
(D) assign, to the extent possible,
to NTPC or its nominated agency at
the time of transfer all unexpired
guarantees and warranties by
Subcontractors and suppliers and all
insurance policies; and
(E) at its cost transfer to NTPC.
or its nominee all such applicable
permits which NTPC shall require
for owning and operating the Project.
Assets which can be legally
transferred. Provided if the
termination is on account of NTPC's
Event of Default the cost of such
transfer shall be borne or reimbursed
by NTPC
(F) at its cost, remove within 90
(ninety) days from the expiry of this
Agreement, from the Project Site any
moveable/immoveable assets that are
not to be taken over by NTPC under
this Agreement
(ii) NTPC and the Operator shall, at
least six (6) months prior to the expiry of the
Operation Period or upon commencement of
Termination Period, as the case may be, take
all necessary steps to comply with the
aforesaid process of transfer of assets on the
Transfer Date, During this period, the
designated key personnel of NTPC shall be
associated with the operations of the Project
in order to facilitate smooth take-over of the
same by NTPC on the Transfer Date.
(iii) It is clarified that NTPC or its
nominated agency shall not take over the
liabilities of the Operator, including without
limitation. liabilities relating to labour and
personnel related obligations of the Operator
and the Persons claiming through or under
the Operator. All such labour and employees
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shall be the responsibility of the
Operator/such Persons even after the
termination/expiry of the Operation Period
and they shall have no claim to any type of
employment or compensation from NTPC or
its nominated agency.
(iv) On the Transfer Date, Project Assets
shall be in healthy / good operating
condition, having regard for the nature of the
asset, the construction and life of the
facilities, structures etc.
(v) If on the Transfer Date, any Person
is found to be occupying the Project Site or
any part thereof, it shall be lawful for NTPC
to secure summary eviction of such Person
in accordance with the Applicable Laws.
(b) Clearances
The Operator shall, at its cost, transfer to
NTPC or its nominated agency, all such
Clearances relating to the Project Assets
which NTPC may require and which can be
legally transferred.
(c) Transfer Costs
(i) The Project Assets shall be
transferred to NTPC or its nominated
agency, as the case may be, for a sum of Re
1/- (one).
(ii) The Operator shall be responsible
for the costs and expenses, including stamp
duties, taxes, legal fees and expenses
incurred in connection with the transfer of
the Project Assets by the Operator to NTPC
or its nominated agency.
(d) Guarantees
NTPC. shall be entitled to call in, forfeit,
encash and appropriate any subsisting
Performance Security provided by the
Operator, if the termination is on account of
an Operator Event of Default.
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(e) Transfer of Risk
Until the Transfer Date, all risks shall lie
with the Operator for loss of or damage to
the whole or any part of the Project Assets
unless the loss or damage is due to an act or
omission of NTPC in contravention of its
obligations under this Agreement. On and
from the Transfer Date all risks in relation to
the Project Assets shall be deemed to have
been transferred to and lie with NTPC or its
nominated agency.
Article 1.2(b)(xix) - the damages payable by either Party to the
other of them, as set forth in this Agreement, whether on per diem
basis or otherwise, are mutually agreed genuine pre-estimated loss
and damage likely to be suffered and incurred by the Party entitled
to receive the same and are not by way of penalty (the Damages") .
Article 14
14.1 Compensation
(a) Termination due to Force Majeure Event
(i) No payment shall be paid by any party in
case operation stops due to Force majeure.
(ii) The period of operation shall be increased
by the same duration for which event. of force
Majeure exists.
(b) Termination due to Operator Event of Default
If the termination is due to Operator Event of
Default, NTPC shall forfeit the Performance
security submitted by Operator.
(c) Termination due to NTPC Default
In the event this Agreement is terminated due to
NTPC Event of Default then NTPC shall buyback
the Unloading Infrastructure and Material Handling
System at (1) Debt Due plus (2) 1.00% (one
hundred percent) Equity.
Provided, however, for the purposes of this
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Agreement Debt Due and Equity shall not exceed
the value as determined on a normative capital cost
of [Rs. 90 crores] that is financed on Debt to Equity
ratio of 70:30 and assuming that the repayment over
7 (seven) years period after COD,
(d) Termination due to IWAI Default
No payment shall be paid to any parties to this
contract in case project terminated due to IWAI
Event of Default.
5. Thus, Article 1.1 of the TPA provided that the date of
completion of Phase I and Phase II would be treated as the
8
Commercial Operation Date for the purposes of the TPA. Operation
of the Coal Hauling System would commence from that date. Article
2.3 provided that the operation period for the Coal Hauling System
would be up to seven years from the COD, or up to termination of the
TPA. On the expiry of seven years, the infrastructure which was
created and owned by JITF would vest in NTPC for a token payment
of ₹ 1.
6. In order for the project to take place, NTPC entered into several
9
short term contracts with Imported Coal Suppliers to procure
imported coal for transportation to FTTP.
7. The CTAs provided that imported coal would be supplied by
the ICSs and the JITF would unload the coal and transport it to the
FTTP through the Inland Waterways. The JITF was required to
transport coal at the rate of not less than 12000 MT per day.
8
“COD”, hereinafter
9
“ICS”, hereinafter
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8. Under Article 2.2(b)(c)(d), JITF undertook to complete Phase I
and Phase II of the project within 15 months and 24 months of the
execution of the TPA, i.e., by 10 November 2012 and 10 August 2013
respectively. However, Phase I could be completed only by 30
November 2013 and Phase II by 15 June 2015. i.e., with a delay of
385 days and 674 days respectively. The COD was, therefore,
extended to 15 June 2015.
9. On 15 November 2016, JITF invoked, against NTPC, the
provision for arbitration contained in the TPA by issuing a notice
invoking arbitration under Section 21 of the Arbitration and
10
Conciliation Act, 1996 . On 17 November 2017, an Arbitral
11
Tribunal was constituted, which came to render the award from
which the present proceedings has emanated.
10. Before the learned AT, on 4 March 2017, JITF filed its
12
Statement of Claim claiming damages/compensation from NTPC.
Additionally, JITF filed an application under Section 17 of the 1996
13
Act , seeking a direction to NTPC to pay an amount of ₹ 158.50
Crores as compensation for failure to provide the Minimum
14
Guaranteed Quantity of coal for the first year of the operation
period, i.e., for the period 15 June 2015 to 14 June 2016.
11. On 9 March 2017, a consultation notice was issued by NTPC to
JITF in terms of Article 12 of the TPA. Thereafter on 24 July 2017,
10
“the Act of 1996”, hereinafter
11
“the learned AT” hereinafter
12
“SOC”, hereinafter
13 st
“the 1 Section 17 application” hereinafter
14
“MGQ”, hereinafter
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NTPC issued a termination notice to JITF under Article 13 of the
TPA.
15
12. On 26 May 2017, Statement of Defence and counter claim
were filed by the NTPC against the JITF.
st
13. Vide order dated 15 July 2017 passed in the 1 Section 17
application filed by JITF, the Arbitral Tribunal directed NTPC to pay,
to JITF, the MGQ amount as claimed by JITF for the first year of the
operation period, against providing of an equivalent bank guarantee by
16
JITF. This was followed by two more applications under Section 17
by JITF preferred before the Arbitral Tribunal on 4 September 2017.
The first application sought a direction to NTPC to deposit damages /
compensation for failure to provide the MGQ for the second year of
the operation period. The second application sought a stay of the
termination notice dated 24 July 2017.
14. The original SOC filed by the JITF claimed
(i) damages towards loss of revenue incurred by JITF,
towards the expenses incurred by it on account of deviations in
the tender plan worked out to ₹ 4173274285/- for Phase-I and ₹
67526138/- for Phase-II i.e. a total of approximately ₹424
Crores for both Phases of the project,
(ii) a declaration that the claim for liquidated damages of ₹
45 Crores claimed by NTPC against JITF was unenforceable in
law,
15
“SOD” hereinafter
16 nd rd
“the 2 Section 17 application” and “the 3 Section 17 application” hereinafter
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(iii) ₹ 1585005003/- towards the MGQ for the first year of the
operation period,
(iv) ₹ 72854082/- towards excess wharfage, and
(v) Interest on the delayed payment by NTPC computed at
₹1,24,76,54070/-.
15. On 5 September 2017 and 16 September 2017, JITF applied
under Section 28(3) of the 1996 Act to amend its SOC to claim:
(i) the MGQ for the second year of the operation period of
₹1 97.81 Crores along with additional wharfage, and
(ii) damages of ₹ 1108.93 Crores for the remaining five years
of the operation period following the termination of the TPA by
NTPC on 24 July 2017.
16. On 11 August 2017, JITF filed yet another application before
17
the Arbitral Tribunal under Section 17 of the 1996 Act , seeking stay
against invocation of the performance bank guarantee dated 8 August
2014 furnished by JITF in terms of the TPA. This prayer was granted
by the Arbitral Tribunal by way of an ex parte order dated 12 August
2017. Following this, by a further order dated 20 December 2017, the
Arbitral Tribunal stayed the operation of the termination notice dated
24 July 2017 issued by NTPC to JITF. The same order also directed
NTPC to pay to JITF ₹ 197.8 Crores as the MGQ for the second year
of the operation period, against furnishing by JITF of a bank guarantee
of an equivalent amount.
17. NTPC complied with the directions issued by the Arbitral
17 th
“the 4 Section 17 application” hereinafter
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Tribunal to pay MGQ to JITF for the first and second year of the
operation period against furnishing, by JITF, of bank guarantees for
equivalent amounts.
18. Ultimately, the claims of JITF against NTPC were divided into
Claim Nos.1, 2, 3 and 3A, 4, 5, 5A, 6 and 7.
19. The dispute, both before the learned Single Judge as well as
before us, is limited to Claims 1, 3, 3A and 5A of JITF which,
therefore, may be tabulated thus:
Claim
Claim
No.
1 NTPC is responsible and liable for the delays and deviations (from
Tender) in Construction Completion of Material Handling System
Phase-I and II and JITF is entitled to an amount of ₹ 424,08,00,423 /-.
3 and
3A
NTPC breached its obligation to provide MGQ at Transfer Point for
First and Second Years of Operation Period and JITF is entitled to
amount of ₹ 158,50,05,003/- towards MGQ amount for First Year
Operation Period and ₹ 197,81,13,512/ towards MGQ Amount for
Second Year Operation Period.
5A NTPC's Consultation Notice, Termination Notice and Requisition
Notice are illegal, invalid, non-est and of no effect whatsoever
20. The arbitral proceedings culminated in the rendition, by the
Arbitral Tribunal, of arbitral award dated 27 January 2019.
21. Aggrieved thereby, NTPC challenged the award by way of
OMP (Comm) 204/2019.
22. By judgement dated 30 January 2025, a learned Single Judge
has allowed OMP (Comm) 204/2019, and has set aside the arbitral
award in its entirety.
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23. The present appeal, under Section 37 of the 1996 Act, has been
preferred by JITF, against the judgement of the learned Single Judge.
24. We have heard Dr. A. M. Singhvi and Mr. Jayant Mehta,
learned Senior Advocates for the appellant and Mr. Tushar Mehta, the
learned Solicitor General, for the respondent, at length. Written
submissions have also been filed by learned Senior Counsel.
B. Scope of interference under Section 34 and Section 37
25. At the outset, it is necessary to appreciate the scope of judicial
review, over the arbitral award, in proceedings under Section 34 and,
thereafter, under Section 37 of the 1996 Act, to the extent they are
relevant for adjudication of the present appeal.
26. Section 34
18
26.1 Between themselves, sub-sections (2) and (2A) of Section 34
18
(2) An arbitral award may be set aside by the Court only if—
( a ) the party making the application establishes on the basis of the record of the arbitral
tribunal that—
( i ) a party was under some incapacity; or
( ii ) the arbitration agreement is not valid under the law to which the parties have
subjected it or, failing any indication thereon, under the law for the time being in force; or
( iii ) the party making the application was not given proper notice of the appointment
of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;
or
( iv ) the arbitral award deals with a dispute not contemplated by or not falling within
the terms of the submission to arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from
those not so submitted, only that part of the arbitral award which contains decisions on
matters not submitted to arbitration may be set aside; or
( v ) the composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties, unless such agreement was in conflict with
a provision of this Part from which the parties cannot derogate, or, failing such
agreement, was not in accordance with this Part; or
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envisage setting aside of an arbitral award only if
(i) one or other of the parties was under some incapacity, or
(ii) the arbitration agreement was not valid under the law, or
(iii) the applicant was not given notice of appointment of the
arbitrator or the arbitral proceedings or was otherwise unable to
present his case, or
(iv) the award deals with a dispute which was not falling
within the terms of submission to arbitration or decides matters
beyond the scope of submission to arbitration, or
(v) the composition of the arbitral tribunal, all the arbitral
procedure, was not in accordance with the agreement between
the parties, or
(vi) the subject matter of the dispute is not arbitrable, or
(vii) the award is in conflict with the public policy of India, or
(viii) the award is vitiated by patent illegality appearing on its
face.
The use of the word “only” makes it abundantly clear that, outside
these exigencies, an arbitral award cannot be set aside on any other
ground.
( b ) the Court finds that—
( i ) the subject-matter of the dispute is not capable of settlement by arbitration
under the law for the time being in force, or
( ii ) the arbitral award is in conflict with the public policy of India.
Explanation 1- For the avoidance of any doubt, it is clarified that an award is in conflict with the public
policy of India, only if,—
(i) the making of the award was induced or affected by fraud or corruption or was
in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2- For the avoidance of doubt, the test as to whether there is a contravention with the
fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(2-A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may
also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the
face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or
by reappreciation of evidence.
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26.2 Explanation 1 to Section 34 (2)(b) explains that an award would
be in conflict with the public policy of India only if
(i) the award is tainted by fraud, corruption or is in violation
of Sections 75 or 81 of the 1996 Act, or
(ii) the award is in contravention with the fundamental policy
of Indian law, or
(iii) the award is in conflict with the most basic notions of
morality of justice.
26.3 Of all these circumstances envisaged by the statute as justifying
setting aside of an arbitral award, the facts of the present case
essentially concerned in validity of the award on the ground that it
suffers from “patent illegality”. Additionally, to an extent, it may also
be useful to understand the expression “fundamental policy of Indian
law”. The grounds on which the impugned judgement of the learned
Single Judge sets aside the arbitral award are not relatable to any of
the other circumstances contemplated in Section 34.
26.4 Certain decisions of the Supreme Court, which illuminate the
aspect of patent illegality and the fundamental policy of Indian law
made, to the relevant extent, be noted thus:
19
(i) Associate Builders v. DDA
“17. It will be seen that none of the grounds contained in sub-
section (2)( a ) of Section 34 deal with the merits of the decision
rendered by an arbitral award. It is only when we come to the
award being in conflict with the public policy of India that the
19
(2015) 3 SCC 49
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merits of an arbitral award are to be looked into under certain
20
specified circumstances.
*
19. When it came to construing the expression “the public
policy of India” contained in Section 34(2)(b)(ii) of the Arbitration
21
Act, 1996, this Court in ONGC Ltd. v. Saw Pipes Ltd. held:
“31. Therefore, in our view, the phrase ‘public policy of
India’ used in Section 34 in context is required to be given a
wider meaning. It can be stated that the concept of public
policy connotes some matter which concerns public good
and the public interest. What is for public good or in public
interest or what would be injurious or harmful to the public
good or public interest has varied from time to time.
However, the award which is, on the face of it, patently in
violation of statutory provisions cannot be said to be in
public interest . Such award/judgment/decision is likely to
adversely affect the administration of justice. Hence, in our
view in addition to narrower meaning given to the term
‘public policy’ in Renusagar Power Co. Ltd. v. General
22
Electric Co. , it is required to be held that the award could
be set aside if it is patently illegal. The result would be—
award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the
illegality is of trivial nature it cannot be held that award is
against the public policy. Award could also be set aside if it
is so unfair and unreasonable that it shocks the conscience
of the court. Such award is opposed to public policy and is
required to be adjudged void.
*
42. In the 1996 Act, this principle is substituted by the
“patent illegality” principle which, in turn, contains three
subheads:
20
This statement of the law may not be regarded as binding any more, as, following the decision in
Associated Builders , Section 34 was amended, with effect from 23 October 2015, by inserting sub-section
(2A) therein, which provides for “patent illegality” as a ground to set aside an arbitral award.
21
(2003) 5 SCC 705
22
1994 Supp (1) SCC 644
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42.1. (a) A contravention of the substantive law of India
would result in the death knell of an arbitral award. This
must be understood in the sense that such illegality must go
to the root of the matter and cannot be of a trivial nature.
This again is really a contravention of Section 28(1)( a ) of
the Act, which reads as under:
“28. Rules applicable to substance of dispute.
(1) Where the place of arbitration is situated in
India—
(a) in an arbitration other than an
international commercial arbitration, the
Arbitral Tribunal shall decide the dispute
submitted to arbitration in accordance with
the substantive law for the time being in force
in India;”
42.2. (b) A contravention of the Arbitration Act itself would
be regarded as a patent illegality — for example if an
arbitrator gives no reasons for an award in contravention
of Section 31(3) of the Act, such award will be liable to be
set aside.
42.3. (c) Equally, the third subhead of patent illegality is
really a contravention of Section 28(3) of the Arbitration
Act, which reads as under:
“28. Rules applicable to substance of dispute.—
(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.”
This last contravention must be understood with a caveat.
An Arbitral Tribunal must decide in accordance with the
terms of the contract, but if an arbitrator construes a term
of the contract in a reasonable manner, it will not mean that
the award can be set aside on this ground. Construction of
the terms of a contract is primarily for an arbitrator to
decide unless the arbitrator construes the contract in such a
way that it could be said to be something that no fair-
minded or reasonable person could do.
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56. Here again, the Division Bench has interfered
wrongly with the arbitral award on several counts. It had no
business to enter into a pure question of fact to set aside the
arbitrator for having applied a formula of 20 months
instead of 25 months. Though this would inure in favour of
the appellant, it is clear that the appellant did not file any
cross-objection on this score. Also, it is extremely curious
that the Division Bench found that an adjustment would
have to be made with claims awarded under Claims 2, 3 and
4 which are entirely separate and independent claims and
have nothing to do with Claims 12 and 13. The formula then
applied by the Division Bench was that it would itself do
“rough and ready justice”. We are at a complete loss to
understand how this can be done by any court under the
jurisdiction exercised under Section 34 of the Arbitration
Act. As has been held above, the expression “justice” when
it comes to setting aside an award under the public policy
ground can only mean that an award shocks the conscience
of the court. It cannot possibly include what the court thinks
is unjust on the facts of a case for which it then seeks to
substitute its view for the arbitrator's view and does what it
considers to be “justice”. With great respect to the Division
Bench, the whole approach to setting aside arbitral awards
is incorrect. The Division Bench has lost sight of the fact
that it is not a first appellate court and cannot interfere with
errors of fact .
(Emphasis supplied)
23
(ii) Ssangyong Engineering & Construction Co. Ltd. v. NHAI
“19. There is no doubt that in the present case, fundamental
changes have been made in the law. The expansion of “public
24
policy of India” in ONGC v. Saw Pipes Ltd and ONGC v.
25
Western Geco International Ltd. has been done away with, and a
new ground of “patent illegality”, with inbuilt exceptions, has been
introduced. Given this, we declare that Section 34, as amended,
will apply only to Section 34 applications that have been made to
the Court on or after 23-10-2015, irrespective of the fact that the
arbitration proceedings may have commenced prior to that date.
*
22 . However, this Court, in Saw Pipes , added yet another
ground, namely, that of “patent illegality” to the three grounds
23
(2019) 15 SCC 131
24
2003) 5 SCC 705
25
2014) 9 SCC 263
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26
mentioned in Renusagar Power Co. Ltd. v. General Electric Co . ,
in order to set aside an award under Section 34 of the 1996 Act.
This ground was added in the following terms: ( Saw Pipes case )
“31. … [Patent] Illegality must go to the root of the matter
and if the illegality is of trivial nature it cannot be held that
award is against the public policy. Award could also be set
aside if it is so unfair and unreasonable that it shocks the
conscience of the court. Such award is opposed to public
policy and is required to be adjudged void.”
*
37. Insofar as domestic awards made in India are concerned, an
additional ground is now available under sub-section (2-A), added
by the Amendment Act, 2015, to Section 34. Here, there must be
patent illegality appearing on the face of the award, which refers to
such illegality as goes to the root of the matter but which does not
amount to mere erroneous application of the law. In short, what is
not subsumed within “the fundamental policy of Indian law”,
namely, the contravention of a statute not linked to public policy or
public interest, cannot be brought in by the backdoor when it
comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation of
evidence, which is what an appellate court is permitted to do,
cannot be permitted under the ground of patent illegality appearing
on the face of the award.
39. To elucidate, para 42.1 of Associate Builders , namely, a mere
contravention of the substantive law of India, by itself, is no longer
a ground available to set aside an arbitral award . Para 42.2 of
Associate Builders , however, would remain, for if an arbitrator
gives no reasons for an award and contravenes Section 31(3) of the
1996 Act, that would certainly amount to a patent illegality on the
face of the award.
40. The change made in Section 28(3) by the Amendment Act
really follows what is stated in paras 42.3 to 45 in Associate
Builders , namely, that the construction of the terms of a contract is
primarily for an arbitrator to decide, unless the arbitrator
construes the contract in a manner that no fair-minded or
reasonable person would; in short, that the arbitrator's view is not
even a possible view to take. Also, if the arbitrator wanders outside
the contract and deals with matters not allotted to him, he commits
an error of jurisdiction. This ground of challenge will now fall
within the new ground added under Section 34(2-A).
26
1994 Supp (1) SCC 644
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41. What is important to note is that a decision which is
perverse, as understood in paras 31 and 32 of Associate Builders ,
while no longer being a ground for challenge under “public policy
of India”, would 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. ”
(Emphasis supplied)
27
(iii) MMTC Ltd. v. Vedanta Ltd
“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 Act in
2015, a violation of Indian public policy, in turn, includes a
violation of the fundamental policy of Indian law, a violation of the
interest of India, conflict with justice or morality, and the existence
of patent illegality in the arbitral award. Additionally , the concept
of the “fundamental policy of Indian law” would cover compliance
with statutes and judicial precedents, adopting a judicial approach,
compliance with the principles of natural justice, and Associated
28
Provincial Picture Houses v. Wednesbury Corpn .,
reasonableness . Furthermore, “patent illegality” itself has been
held to mean contravention of the substantive law of India,
contravention of the 1996 Act, and contravention of the terms of the
contract.
12. It is only if one of these conditions is met that the Court
may interfere with an arbitral award in terms of Section
34(2)( b )( ii ), but such interference does not entail a review of the
merits of the dispute, and is limited to situations where the findings
of the arbitrator are arbitrary, capricious or perverse, or when the
conscience of the Court is shocked, or when the illegality is not
trivial but goes to the root of the matter. An arbitral award may not
be interfered with if the view taken by the arbitrator is a possible
27
(2019) 4 SCC 163
28
(1948) 1 KB 223 (CA)
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view based on facts . (See Associate Builders ). Also see ONGC
Ltd. v. Saw Pipes Ltd. ; Hindustan Zinc Ltd. v. Friends Coal
29
Carbonisation ; and McDermott International Inc. v. Burn
30
Standard Co. Ltd .
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.”
(iv) PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port
31
Trust
“40. 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 held to mean “the fundamental policy of Indian law”. A
judicial intervention on account of interfering on the merits of the
award would not be permissible. However, the principles of
natural justice as contained in Sections 18 and 34(2)(a)(iii) of the
Arbitration Act would continue to be the grounds of challenge of an
award. The ground for interference on the basis that the award is in
conflict with justice or morality is now to be understood as a
conflict with the “most basic notions of morality or justice”. It is
only such arbitral awards that shock the conscience of the court,
that can be set aside on the said ground. An award would be set
aside on the ground of patent illegality appearing on the face of the
award and as such, which goes to the roots of the matter. However,
an illegality with regard to a mere erroneous application of law
would not be a ground for interference. Equally, reappreciation of
evidence would not be permissible on the ground of patent
illegality appearing on the face of the award .
29
(2006) 4 SCC 445
30
(2006) 11 SCC 181
31
(2023) 15 SCC 781
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41. A decision which is perverse, though would not be a ground
for challenge under “public policy of India”, would certainly
amount to a patent illegality appearing on the face of the award.
However, 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.
42. To understand the test of perversity, it will also be
appropriate to refer to paras 31 and 32 from the judgment of this
Court in Associate Builders , which read thus:
“31. The third juristic principle is that a decision which is
perverse or so irrational that no reasonable person would
have arrived at the same is important and requires some
degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account
something irrelevant to the decision which it arrives
at; or
(iii) ignores vital evidence in arriving at its
decision,
such decision would necessarily be perverse.
32. A good working test of perversity is contained in
two judgments. In Excise and Taxation Officer-cum-
32
Assessing Authority v. Gopi Nath & Sons , it was held:
‘7. … It is, no doubt, true that if a finding of fact is
arrived at by ignoring or 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.’
33
In Kuldeep Singh v. Commr. of Police , it was held:
‘10. A broad distinction has, therefore, to be
maintained between the decisions which are perverse
and those which are not. If a decision is arrived at on
no evidence or evidence which is thoroughly
unreliable and no reasonable person would act upon
it, the order would be perverse. But if there is some
evidence on record which is acceptable and which
could be relied upon, howsoever compendious it may
32
1992 Supp (2) SCC 312
33
(1999) 2 SCC 10
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be, the conclusions would not be treated as perverse
and the findings would not be interfered with .’ ”
(Emphasis supplied)
(v) Delhi Metro Rail Corporation v. Delhi Airport Metro Express
34
(P) Ltd
“34. The contours of the power of the competent court to set
aside an award under Section 34 has been explored in several
decisions of this Court. In addition to the grounds on which an
arbitral award can be assailed laid down in Section 34(2), there is
another ground for challenge against domestic awards, such as the
award in the present case. Under Section 34(2-A) of the Arbitration
Act, a domestic award may be set aside if the Court finds that it is
vitiated by “patent illegality” appearing on the face of the award.
35. In Associate Builders , a two-Judge Bench of this Court
held that although the interpretation of a contract is exclusively
within the domain of the arbitrator, construction of a contract in a
manner that no fair-minded or reasonable person would take, is
impermissible. A patent illegality arises where the arbitrator
adopts a view which is not a possible view. A view can be regarded
as not even a possible view where no reasonable body of persons
could possibly have taken it. This Court held with reference to
Sections 28(1)( a ) and 28(3), that the arbitrator must take into
account the terms of the contract and the usages of trade
applicable to the transaction. The decision or award should not be
perverse or irrational. An award is rendered perverse or irrational
where the findings are:
(i) based on no evidence;
(ii) based on irrelevant material; or
(iii) ignores vital evidence.
*
39. In essence , the ground of patent illegality is available for
setting aside a domestic award, if the decision of the arbitrator is
found to be perverse, or so irrational that no reasonable person
would have arrived at it; or the construction of the contract is such
that no fair or reasonable person would take; or, that the view of
the arbitrator is not even a possible view . [ Patel Engg. Ltd. v.
35
North Eastern Electric Power Corpn. Ltd ]. A “finding” based on
no evidence at all or an award which ignores vital evidence in
34
(2024) 6 SCC 357
35
(2020) 7 SCC 167
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arriving at its decision would be perverse and liable to be set aside
under the head of “patent illegality”. An award without reasons
would suffer from patent illegality. The arbitrator commits a patent
illegality by deciding a matter not within his jurisdiction or
violating a fundamental principle of natural justice .”
(Emphasis supplied)
(vi) OPG Power Generation (P) Ltd. v. Enexio Power Cooling
36
Solutions (India) (P) Ltd
“55. In the light of aforesaid discussion, reverting back to the
instant matter, on a plain and grammatical construction of clauses
( ii ) and ( iii ) of Explanation 1 to Section 34(2)( b ) of the 1996 Act it
cannot be said that the imposition of an exorbitant interest in the
background of contemporary commercial practices, would be
against the fundamental policy of Indian law , or against the basic
notions of morality or justice. It is well-settled that fundamental
policy of Indian law does not refer to violation of any statute but
fundamental principles on which Indian law is founded. Any
difference or controversy as to rate of interest clearly falls outside
the scope of challenge on the ground of conflict with the public
policy of India unless it is evident that the rate of interest awarded
is so perverse and so unreasonable so as to shock the conscience of
the Court sans which no interference is warranted in the award,
whereby interest is awarded by the arbitrator.
56. Without intending to exhaustively enumerate instances of
such contravention, by way of illustration, it could be said that:
(a) violation of the principles of natural justice;
(b) disregarding orders of superior courts in India or
the binding effect of the judgment of a superior court; and
(c) violating law of India linked to public good or
public interest, are considered contravention of the
fundamental policy of Indian law.
However, while assessing whether there has been a contravention
of the fundamental policy of Indian law, the extent of judicial
scrutiny must not exceed the limit as set out in Explanation 2 to
Section 34(2)(b)(ii) .”
74. The aforesaid judicial precedents make it clear that while
exercising power under Section 34 of the 1996 Act the Court does
36
(2025) 2 SCC 417
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not sit in appeal over the arbitral award. Interference with an
arbitral award is only on limited grounds as set out in Section 34 of
the 1996 Act. A possible view by the arbitrator on facts is to be
respected as the arbitrator is the ultimate master of the quantity
and quality of evidence to be relied upon. It is only when an
arbitral award could be categorised as perverse, that on an error
of fact an arbitral award may be set aside. Further, a mere
erroneous application of the law or wrong appreciation of evidence
by itself is not a ground to set aside an award as is clear from the
provisions of sub-section (2-A) of Section 34 of the 1996 Act .
*
79. On the requirement of recording reasons in an arbitral
award and consequences of lack of, or inadequate, reasons in an
arbitral award, this Court in Dyna Technologies [ Dyna
Technologies (P) Ltd. v. Crompton Greaves Ltd. , (2019) 20 SCC 1,
paras 27-43] held : (SCC p. 14, paras 34-35)
“34. The mandate under Section 31(3) of the Arbitration
Act is to have reasoning which is intelligible and adequate
and, which can in appropriate cases be even implied by the
courts from a fair reading of the award and documents
referred to thereunder, if the need be. The aforesaid
provision does not require an elaborate judgment to be
passed by the arbitrators having regard to the speedy
resolution of dispute.
35. When we consider the requirement of a reasoned
order, three characteristics of a reasoned order can be
fathomed. They are : proper, intelligible and adequate. If the
reasonings in the order are improper, they reveal a flaw in
the decision-making process. If the challenge to an award is
based on impropriety or perversity in the reasoning, then it
can be challenged strictly on the grounds provided under
Section 34 of the Arbitration Act. If the challenge to an
award is based on the ground that the same is
unintelligible, the same would be equivalent of providing no
reasons at all. Coming to the last aspect concerning the
challenge on adequacy of reasons, the court while
exercising jurisdiction under Section 34 has to adjudicate
the validity of such an award based on the degree of
particularity of reasoning required having regard to the
nature of issues falling for consideration. The degree of
particularity cannot be stated in a precise manner as the
same would depend on the complexity of the issue. Even if
the court comes to a conclusion that there were gaps in the
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reasoning for the conclusions reached by the Tribunal, the
court needs to have regard to the document submitted by
the parties and the contentions raised before the Tribunal
so that awards with inadequate reasons are not set aside in
casual and cavalier manner. On the other hand, ordinarily
unintelligible awards are to be set aside, subject to party
autonomy to do away with the reasoned award. Therefore,
the courts are required to be careful while distinguishing
between inadequacy of reasons in an award and
unintelligible awards.”
80. We find ourselves in agreement with the view taken in
37
Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd . , as
extracted above. Therefore, in our view, for the purposes of
addressing an application to set aside an arbitral award on the
ground of improper or inadequate reasons, or lack of reasons,
awards can broadly be placed in three categories:
(1) where no reasons are recorded, or the reasons
recorded are unintelligible;
(2) where reasons are improper, that is, they reveal a
flaw in the decision-making process; and
(3) where reasons appear inadequate.
81. Awards falling in Category (1) are vulnerable as they
would be in conflict with the provisions of Section 31(3) of the 1996
Act. Therefore, such awards are liable to be set aside under Section
34, unless:
(a) the parties have agreed that no reasons are to be
given, or
(b) the award is an arbitral award on agreed terms
under Section 30.
82. Awards falling in Category (2) are amenable to a challenge
on ground of impropriety or perversity, strictly in accordance with
the grounds set out in Section 34 of the 1996 Act.
83. Awards falling in Category (3) require to be dealt with
care. In a challenge to such award, before taking a decision the
Court must take into consideration the nature of the issues arising
between the parties in the arbitral proceedings and the degree of
reasoning required to address them. The Court must thereafter
carefully peruse the award, and the documents referred to therein.
If reasons are intelligible and adequate on a fair reading of the
award and, in appropriate cases, implicit in the documents referred
37
(2019) 20 SCC 1
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to therein, the award is not to be set aside for inadequacy of
reasons. However, if gaps are such that they render the reasoning
in support of the award unintelligible, or lacking, the Court
exercising power under Section 34 may set aside the award .
84. An Arbitral Tribunal must decide in accordance with the
terms of the contract . In a case where an Arbitral Tribunal passes
an award against the terms of the contract, the award would be
patently illegal. However, an Arbitral Tribunal has jurisdiction to
interpret a contract having regard to terms and conditions of the
contract, conduct of the parties including correspondences
exchanged, circumstances of the case and pleadings of the parties.
If the conclusion of the arbitrator is based on a possible view of the
matter, the Court should not intefere [ See : SAIL v. Gupta
38
Brother Steel Tubes Ltd . , Pure Helium India (P) Ltd. v.
39
ONGC ; McDermott International Inc. v. Burn Standard Co.
40 41
Ltd ; MMTC Ltd. v. Vedanta Ltd ]. But where, on a full reading
of the contract, the view of the Arbitral Tribunal on the terms of a
contract is not a possible view, the award would be considered
perverse and as such amenable to interference [ South East Asia
42
Marine Engg. & Constructions Ltd. v. Oil India Ltd ] .
*
168. We have given due consideration to the above submission.
In our view, a distinction would have to be drawn between an
arbitral award where reasons are either lacking/unintelligible or
perverse and an arbitral award where reasons are there but appear
inadequate or insufficient [ See paras 79 to 83 of this judgment.] .
In a case where reasons appear insufficient or inadequate, if, on a
careful reading of the entire award, coupled with documents
recited/relied therein, the underlying reason, factual or legal, that
forms the basis of the award, is discernible/intelligible, and the
same exhibits no perversity, the Court need not set aside the award
while exercising powers under Section 34 or Section 37 of the 1996
Act, rather it may explain the existence of that underlying reason
while dealing with a challenge laid to the award. In doing so, the
Court does not supplant the reasons of the Arbitral Tribunal but
only explains it for a better and clearer understanding of the
award.”
(Emphasis supplied)
38
(2009) 10 SCC 63
39
(2003) 8 SCC 593
40
(2006) 11 SCC 181
41
(2019) 4 SCC 163
42
(2020) 5 SCC 164
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43
(vii) Prakash Atlanta (JV) v. National Highways Authority of India
“24. In Associate Builders , this Court noted that the expression
‘public policy of India’ in Section 34(2)(b)(ii) of the Arbitration
Act was given a wider meaning in ONGC Ltd. v. Saw Pipes Ltd. It
was held therein that the concept of public policy connotes some
matter which concerns public good and public interest. It was
observed that what is for public good or in public interest or what
would be injurious or harmful to the public good or public interest
has varied from time to time but an arbitral award which, on the
face of it, is patently in violation of statutory provisions, cannot be
said to be in public interest. It was further observed that such an
award is likely to adversely affect the administration of justice.
This Court, therefore, held that, in addition to the narrower
meaning given to the term ‘public policy’ by a 3-Judge Bench of
this Court in Renusagar , an arbitral award can be set aside if it is
patently illegal. The result was that an arbitral award could be set
aside if it was contrary to the fundamental policy of Indian law; or
the interest of India; or justice or morality; or if it is patently
illegal. It was observed that illegality must go to the root of the
matter but, if the illegality is of trivial nature, it cannot be held that
the award is against public policy. It was further held that if the
award is so unfair and unreasonable that it shocks the conscience
of the Court, it would be opposed to public policy.
44
25. Thereafter, in ONGC v. Western Geco International Ltd . ,
3-Judge Bench of this Court added three other distinct and
fundamental juristic principles which must be understood as part
and parcel of the fundamental policy of Indian law. The first is the
principle that in every determination that affects the rights of a
citizen or leads to civil consequences, whether by a Court or other
authority, such Court or authority is bound to adopt what is, in
legal parlance, called ‘judicial approach’ . The second principle is
that a Court and so also a quasi-judicial authority, while
determining rights and obligations of parties before it, must do so
in accordance with the principles of natural justice. It was
observed that, in addition to audi alteram partem, the
Court/authority deciding the matter must apply its mind to the
attendant facts and circumstances as non-application of mind is a
defect that is fatal to any adjudication. It was, therefore, held that
the requirement that an adjudicating authority must apply its mind
is so deeply embedded in our jurisprudence that it can be described
as the fundamental policy of Indian law . The last principle is that a
decision which is perverse or so irrational that no reasonable
person would have arrived at the same cannot be sustained.
43
2026 SCC OnLine SC 98
44
(2014) 9 SCC 263
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Decisions that fall short of the standards of reasonableness were,
therefore, held liable to challenge in a Court of law and even in
statutory processes wherever the same were available .”
(Emphasis supplied)
26.5 The cumulative takeaway
The principles that cumulatively emerge from the above decisions,
regarding conflict with the fundamental policy of Indian law, and
patent illegality, as grounds to set aside an arbitral award, maybe
enumerated as under:
(i) The concept of public policy connotes some matter
which concerns public good and public interest.
(ii) An award which, on the face of it, its patent plea in
violation of statutory provisions, is not in public interest, as it is
likely to adversely affect the administration of justice.
(iii) Illegality, as a ground to set aside an arbitral award, must
go to the root of the matter. Illegality, if trivial, would not result
in an arbitral award becoming contrary to public policy.
(iv) An arbitral award can be set aside if it is so unfair and
unreasonable that it shocks the conscience of the court. Such an
award is opposed to public policy.
(v) A contravention of the 1996 Act itself would be rendered
as a patent illegality as, for example, a case in which no reasons
are provided for the award, as required by Section 31(3). An
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(vi) arbitral award can also be set aside if the reasons
recorded are unintelligible, improper, i.e. revealing of law in the
decision-making process, or inadequate. However, while
exercising this power, the law declared in paras 81 to 83 of
OPG Power Generation , extracted supra , have to be borne in
mind.
(vii) An arbitral award is required to decide the controversy in
accordance with the terms of the contract. Ergo, an award
which is contrary to the terms of the contract is vitiated by
patent illegality.
(viii) However, if the Arbitral Tribunal construes the term of
the contract in a reasonable manner, no ground to set aside the
award would exist. Construction of the terms of the contract is
primarily the realm of the arbitrator. The manner of
construction of the terms of the contract would constitute a
basis to set it aside only if it is such as no fair-minded or
reasonable person would undertake.
(ix) Equally, if an arbitrator wanders outside the contract and
deals with matters which are not allotted to him, it amounts to
an error of jurisdiction, which can constitute a basis to set aside
the arbitral award.
(x) “Patent illegality” has, however, to appear on the face of
the award, and must go to the root of the matter. It does not
include mere erroneous application of the law.
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(xi) Contravention of a statute, not linked with public policy
or public interest, cannot constitute a legitimate basis to set
aside an arbitral award.
(xii) A Section 34 court cannot enter into a pure question of
fact to set aside an arbitral award. It cannot reappreciate
evidence.
(xiii) An arbitral award cannot be set aside to ensure “rough
and ready justice”. “Justice”, as a ground to set aside an arbitral
award, would require the award to be contrary to public policy,
in that it must shock the conscience of the court. The Court
cannot set aside an arbitral award on the ground that it feels that
it is unjust in the facts of the particular case as, by doing so, the
Court is substituting its view for the view of the arbitrator,
which is impermissible.
(xiv) A Section 34 Court is not an appellate court. It cannot
interfere with errors of fact, unless they exhibit perversity.
(xv) Perversity is found to exist where a finding is based on
no evidence at all, or ignores vital evidence, or so outrageously
defies logic has to suffer from the vice of irrationality. A
finding based on documents taken behind the back of a party
would also qualify as a decision based on no evidence and,
therefore, perverse.
(xvi) The requirement of compliance with the “fundamental
policy of Indian law” would include compliance with statutes
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and judicial precedents, adopting a judicial approach,
compliance with the principles of natural justice, and exhibiting
Wednesbury reasonableness.
(xvii) “Patent illegality” includes contravention of the
substantive law of India, contravention of the 1996 Act and
contravention of the terms of the contract.
(xviii) If the view adopted by the arbitral tribunal is possible on
the facts, no case for interference is made out.
(xix) Failure to comply with the principles of natural justice
renders the arbitral award liable to be set aside both on the
ground of being contrary to the fundamental policy of Indian
law as well as vitiated by patent illegality.
(xx) Awarding exorbitant interest would be against the
fundamental policy of Indian law. The rate of interest must be
so perverse and so unreasonable as to shock the conscience of
the Court.
(xxi) Disregarding orders of superior courts in India, or their
binding effect, would render the arbitral award contrary to the
fundamental policy of Indian law.
(xxii) An arbitral tribunal is also required to adopt a judicial
approach, which requires, in turn, application of mind to the
facts and circumstances of the case. Non-application of mind is
fatal to an arbitral award.
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26.6 We proceed, therefore, to examine, keeping in mind the above
principles, whether the learned Single Judge was, in the present case,
justified in setting aside the arbitral award.
C. Findings of the learned Arbitral Tribunal, decision of the
learned Single Judge, rival contentions and analysis thereof
27. To avoid prolixity and repetition, we propose to deal with the
controversy claim-wise, alluding, sequentially, to the findings of the
learned AT, the judgment of the learned Single Judge, the rival
submissions thereon by learned Counsel before us, and our findings
thereon.
C.I Re. Claim No.1 – “NTPC is responsible and liable for the
delays and deviations (from Tender) in Construction Completion of
Material Handling System Phase-I and II and JITF is entitled to an
amount of Rs. 424,08,00,423 /-”.
28. Discussions and findings by the learned AT
28.1 The learned Arbitral Tribunal notes, in para 81 of its Award,
that Claim No. 1 consisted of two parts. The first part was for ₹
417,32,74,285/- and the second was for ₹ 6,75,26,138/-. The claim of
₹ 417,32,74,285/- was on account of shortfall of supply of coal by
NTPC during Phase-1 of the TPA and the second part of the claim for
₹ 6,75,26,138/- was for the costs and expenses incurred by JITF owing
to deviation in the plan, also attributable to the delay on the part of the
NTPC.
28.2 The learned Arbitral Tribunal has examined the aspect of delay
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on the part of NTPC, under the various heads of delay asserted by
JITF in its SOC. The learned Arbitral Tribunal has upheld the claim
of JITF regarding NTPC being responsible for the delay under all the
heads except delay on account of post bid changes in lay out, delay in
removal of surplus earth and delay in removal of abandoned RCC
structures in the path of conveyor belt E.
28.3 On the second aspect of Claim 1, for ₹ 417,32,74,285/- towards
shortfall in supply of coal vis-à-vis the obligation of NTPC as
envisaged in Article 7.1(a)(i) of the TPA, the learned Arbitral Tribunal
has ruled as under:
“83. It is JITF's case that JITF's Transhipper was ready and
available at Transfer Point from 20.02.2013. It was the obligation
of NTPC as per Article 7.1(a)(i) of the TPA to provide 2 MMTPA
of coal during the period commencing from 19.02.2013 (the date
on which JITF could have completed the construction of Phase I if
there was no delay on the part of NTPC) to 14.06.2015 (the date till
declaration of COD by NTPC). The Tribunal is of the view that as
per the provisions of TPA, it is an obligation of NTPC to provide 2
MMTPA of coal during Material Handling System-Phase-I Period.
The Article 3.2(b) provides for compensation for delays committed
by NTPC by extending suitably the period of COD. In an ideal
situation, JITF would be entitled to compensation by suitably
extending the period of COD, however, in the present case, due to
illegal termination (as explained below), the said option is not
available. Therefore, the Tribunal is required to rely on to the
provisions of the Contract Act, 1872, which provides for
compensation in cases of breach. As NTPC due to its own act has
breached the terms of the Contract, NTPC is liable to restore the
damages suffered by JITF for the wrongs committed by NTPC. By
applying the provisions of the Contract Act, this Tribunal is of the
view that JITF is entitled to the Claim of ₹ 417,32,74,285/-.
29. The impugned judgment of the learned Single Judge
29.1 The learned Single Judge has, in the impugned judgment, set
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aside the decision of the learned Arbitral Tribunal with respect to
Claim 1, though the impugned judgment does not differ with the
arbitral award with respect to its findings regarding the various heads
of delay and the responsibility of NTPC in that regard. The basic
considerations on which the learned Single Judge has chosen to set
aside the award of the learned Arbitral Tribunal are to be found in the
following paragraphs from the impugned judgment:
“119. In regard to the first part of the claim No.1, the finding of
the learned AT would indicate that the learned AT has granted the
claim in totality as asked for by the respondent/claimant. It is
shockingly surprising to see that though the learned AT notes that
Article 3.2 (b) provides for compensation for delays committed by
the NTPC by extending suitably the period of COD in an ideal
situation and JITF would be entitled to compensation by suitably
extending the period of COD, however, on account of illegal
termination, the said option is not available. This finding of the
learned AT certainly amounts to the patent illegality and amounts
to perversity which shocks the conscience of the Court. It can also
be noted that the learned AT simply relied on the chart furnished
shed by the respondent/claimant and did not discharge its
obligation of adjudicating the claim. Non-adjudication of the claim
amounts to the award being totally non-speaking and has opened
itself to the challenge by the petitioner.
*
122. Reliance can also be placed upon Union of India v.
45
Chadalwada Gopala Krishna Murthy and Anr. . There is also
substance in the argument raised by the Learned Solicitor General
that the learned AT took the figure of ₹ 417,32,47,285/- claimed by
the respondent/claimant as a correct figure of damages without
adjudication. It was submitted that the learned AT awarded the
claim even though no coal was transported i.e. the coal was
allegedly not provided by NTPC.
*
124. It is an admitted fact that the learned AT awarded this claim
taking into account the obligations of the NTPC as per Article 7.1
(a) (i) of the TPA to provide the 2 MMTPA of Coal during the
45
( 2010) 14 SCC 633
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period commencing from 19.02.2013 (the date of which JITF could
have completed the construction of Phase -I, if there was no delay
on the part of the NTPC) to 14.06.2015 (the date till declaration of
COD by the NTPC). It was noted that since it was an obligation of
NTPC to provide 2 MMTPA of coal during the material handling
system and therefore placing reliance upon the provisions of
Contract Act, 1872 held NTPC is liable to restore the damages
suffered by the JITF for the wrongs committed by NTPC.
Admittedly, the award claim has been granted for the activity
which has not taken place and no operational expenses or running
costs were incurred, which outrightly shocks the conscience of the
Court and makes the finding patently illegal.
*
126. It is pertinent to mention here that the finding of the learned
Arbitral Tribunal is in violation of Article 3.2 (b) of TPA which
provides for only an extension of COD in case of any delay in the
construction period of Phase -I. Thus, the finding of the learned
Arbitral Tribunal is the re-writing of the award. In part II of the
claim whereby the claim in the sum of Rs. 18,32,21,995/- has been
awarded out of the claim of Rs.6,75,26,138/-. It has been submitted
that out of a total delay of 674 days, the delay of 251days has not
been attributed to the NTPC and therefore the damages of delay
could not have been granted to the respondent/claimant. Para-84 of
the impugned award which reads as under:
"84. Similarly, in view of the discussions above, JITF is
also entitled to a sum of Rs1,83,22,995/- (out of total claim
of Rs.6,75,26,138/-) on account of costs and expenses
incurred by JITF towards certain works. The evidence lead
by JITF has also been cogent to support its claim, which
was not contradicted by NTPC and therefore, in view of the
available evidence and findings of the Tribunal, JITF is
entitled to a sum of Rs.1,83,22,995/-."
127. A perusal of this also makes it clear that the learned
Arbitral Tribunal has failed to show any basis for the
quantifications of damages. It is also pertinent to mention here that
the work of Phase-I and Phase-II was to be executed
simultaneously and therefore, the delay would certainly overlap.
This finding is certainly correct to the terms of the contract. Thus,
the Court finds that the award of claim-I falls into the category of
patent illegality, and shocks the conscience of the Court and is
liable to be set aside.”
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29.2 From these paragraphs, it becomes clear that, in setting
aside the award of the learned Arbitral Tribunal, the learned
Single Judge has proceeded on the following considerations:
(i) The learned AT awarded compensation to JITF, even
though Article 3.2(b) of the TPA envisaged payment of
compensation only by extending the COD. As such, the
direction to pay compensation/damages on account of the delay
of NTPC was contrary to Article 3.2(b) of the TPA.
(ii) Compensation had been awarded though no coal was
transported by JITF, as the very basis of awarding
compensation was that there was short supply of coal by NTPC.
The claim had, therefore, been granted for an activity which had
not taken place and for which no costs had been incurred by
JITF. This was shocking to the judicial conscience.
(iii) The figure of ₹ 4173274285/- had been accepted without
any discussion. The table submitted by JITF had merely been
made the basis of awarding the claim, without any examination
of whether the figures in the table were acceptable. Thus, there
was no basis for computation of the claim, as awarded,
forthcoming from the arbitral award.
30 Analysis
30.1 We are unable, with respect, to subscribe to the view expressed
by the learned Single Judge with respect to the award of the learned
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Arbitral Tribunal on Claim 1, especially given the circumscribed
nature of our jurisdiction under Section 37 of the 1996 Act. In setting
aside the award of the learned Arbitral Tribunal, we are of the
considered opinion that the learned Single Judge has transgressed the
boundaries of Section 34.
30.2 In so far as Article 3.2(b) is concerned, the learned Arbitral
Tribunal, in para 83 of the award, notes the fact that the said clause
envisages compensation, to JITF, owing to short supply of coal by
NTPC, only by extension of the COD. Nonetheless, observes the
learned Arbitral Tribunal, it was impossible to operate this clause, as
NTPC had terminated the TPA on 24 July 2017. At the same time,
JITF could not be denied its entitlement to compensation for the
delays on the part of the NTPC, especially as the fact of such delays
and of NTPC being responsible in that regard were not in dispute.
30.3 In adjudicating Claim 1, therefore, the learned Arbitral Tribunal
46
proceeded on the basis of Section 73 of the Contract Act,1872 and
not strictly on the basis of Article 3.2(b). The learned Single Judge has
not held – as, indeed, he could not possibly have – that the Arbitral
Tribunal was foreclosed from awarding compensation under Section
73 of the Contract Act. With respect to the power of the Arbitral
46
73. Compensation for loss or damage caused by breach of contract.— When a contract has been
broken, the party who suffers by such breach is entitled to receive, from the party who has broken the
contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual
course of things from such breach, or which the parties knew, when they made the contract, to be likely to
result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the
breach.
Compensation for failure to discharge obligation resembling those created by contract .— When an
obligation resembling those created by contract has been incurred and has not been discharged, any person
injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as
if such person had contracted to discharge it and had broken his contract.
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Tribunal to award compensation under Section 73, even in a case
where compensation was, otherwise, not payable under the contract
between the parties, one may refer to SAIL v. Gupta Brother Steel
47
Tubes Ltd. , in which it was held:
“24. There is no impediment nor we know of any obstacle for
the parties to a contract to make provision of liquidated damages
for specific breaches only leaving other types of breaches to be
dealt with as unliquidated damages. We are not aware of any
principle that once the provision of liquidated damages has been
made in the contract, in the event of breach by one of the parties,
such clause has to be read covering all types of breaches although
parties may not have intended and provided for compensation in
express terms for all types of breaches.”
30.4 The learned Single Judge was, therefore, not correct in his
finding that, in awarding compensation under Claim 1, the learned
Arbitral Tribunal had breached Article 3.2(b) of the TPA.
30.5 The learned Single Judge further observes that the learned
Arbitral Tribunal could not have awarded a claim for an activity which
had not taken place and in respect of which no cost had been incurred
by JITF.
30.6 This finding, again, is, with respect, not sustainable.
30.7 Article 3.2(b) itself entitled JITF to compensation in the event
of short supply of coal by NTPC. It is no argument, therefore, to state
that as JITF could not have transported coal which had not been
supplied, it would not be entitled to compensation.
47
2009 (10) SCC 63
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30.8 Besides, compensation has been worked out on the basis of the
amount of coal which NTPC was required to supply during Phase-1,
between 19 February 2013 to 14 June 2015, which was the declared
COD date. The award was, therefore, eminently in sync with Section
73 of the Contract Act.
30.9 The third ground on which the learned Single Judge has chosen
to set aside the award of the learned Arbitral Tribunal with respect to
Claim 1 is that there was no discussion, in the arbitral award, of
whether the figure of ₹ 417,32,74,285/-, as claimed by JITF was, or
was not, justified. The learned Single Judge observes that the learned
Arbitral Tribunal merely adopted this figure as contained in the table
filed by JITF before it, without ascertaining the correctness of the
computation. Indeed, this, we may note, was the main plank of the
submissions of the learned Solicitor General, as advanced before us.
The learned Solicitor General was at pains to submit that, irrespective
of whether JITF was, or was not, entitled to damages, it was the
fundamental duty of the learned Arbitral Tribunal to compute the
damages which could be awarded. This exercise, submits the learned
Solicitor General, was wanting in the present instance. The figure of ₹
417,32,7,4285/-, as claimed by JITF, was baldly accepted by the
learned Arbitral Tribunal, without any inquiry or investigation.
30.10 In arriving at this finding, we are of the opinion that the learned
Single Judge has omitted to note the position which emerges from the
evidence led in the case. The Table along with Notes 1 and 2
thereunder, to which learned Single Judge alludes, read thus:
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“Loss of Revenue due to delay from 19 Feb 2013 to 14 June 2015
Date Estimated
Quantity (MT)
Actual
Coal
Offered
(MT)
Shortfall
Quantity
(MT)
Rate
(₹/MT)
Total Revenue
(In ₹)
19-Feb-13 59524 59524 1,051.47 62,587,310
31-Mar-13 166667 166667 1,054.70 175,783,752
30-Apr-13 166667 166667 1,062.13 177,021,620
31-May-13 166667 166667 1,068.60 178,100,186
30-Jun-13 166667 166667 1,072.20 178,700,520
31-Jul-13 166667 166667 1,075.87 179,311,029
31-Aug-13 166667 166667 1,079.41 179,901,188
30-Sep-13 166667 166667 1,083.01 180,501,522
31-Oct-13 166667 166667 1,086.49 181,081,505
30-Nov-13 166667 123762 42905 1,157.19 49,648,851
31-Dec-13 166667 166667 1,163.88 193,980,000
31-Jan-14 166667 166667 1,162.03 193,671,667
18-Feb-14 107143 107143 1,102,23
118,096,591
19-Feb-14 59524 68124 8600 1,102.23 (9,479,430)
31-Mar-14 166667 73100 93567 1,163.95 108,907,857
30-Apr-14 166667 166667 1,146.15
191,025,000
31-May-14 166667 166667 1,119.76 186,627,448
30-Jun-14 166667 166667 1,123.37
187,227,782
31-Jul-14 166667 166667 1,127.46
187,909,517
31-Aug-14 166667 166667 1,131.00 188,499,675
30-Sep-14 166667 78709 87958 1,134.60 99,796,774
31-Oct-14 166667 72500 94167 1,131.73
106,571,242
30-Nov-14 166667 141454 25213 1,095.89 27,630,309
31-Dec-14 166667 166667 1,090.58
181,763,333
31-Jan-15 166667 77000 89667 1,077.88 96,649,907
18-Feb-15 107143 107143 1,053.83
112,910,357
29-Feb-15 59524 59524 1,053.83
62,727,976
31-Mar-15 166667 77000 89667 1,073.98 95,300,207
30-Apr-15 166667 63950 102717 1,071.17 110,027,012
31-May-15 166667 166667 1,070.38 178,396,667
14-Jun-15 77778 67230 10548 1,080.50 11,396,911
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Total 4637302 842829 3794473 4,173,274,285
Note:
1. Rates are based on HSD prices for Kolkata as appearing in
IOCL website.
Copy of relevant page enclosed.
2. Rates are based on Actual Invoices of respective months
except for the months Feb'13-Feb'14, May’14, June’14, July’14,
Aug’14, Sep’14, June’15 for which rates have been calculated
based on Fuel Price for Kolkata appearing on IOCL website.
Copy of relevant page enclosed.”
The above table constituted Annexure C-75 to the amended statement
of claim tendered by JITF before the learned Arbitral Tribunal.
30.11 Had this table been accepted as it stood, without any basis for
the figures contained therein, we might have found substance in the
views of the learned Single Judge.
30.12 That, however, is not the case.
30.13 The figure of 166667 MT per month, in the second column of
the table, is worked out by dividing the contractual obligation of
NTPC, emanating from Article 7.1(a)(i) of the TPA, to supply a
minimum of 2 MMTPA coal during Phase I of the project, with 12,
being the number of months in a year. When the figure of 2 MMTPA
is divided by 12 months, it works out, rounded off, to 166667 MT per
month. Where only a part of the month is involved, the table filed by
JITF proportionately works out the coal which was required to be
supplied by NTPC during that part of the month.
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30.14 Inasmuch as the obligation of NTPC, as emanating from Article
7.1(a)(i) of the TPA, cannot possibly be disputed, the figures in the
second column of the afore-extracted table are equally beyond dispute.
30.15 The shortfall in quantify has been worked out by subtracting,
from the quantity of coal which was required to be supplied per
month, the actual quantity supplied by NTPC. The actual quantity
supplied by NTPC is also not in dispute, so that the figure of shortfall
cannot, equally, be disputed.
30.16 In working out the payment to which JITF would have been
entitled, had NTPC supplied coal as per its contractual obligation
under Article 7.1(a)(i), the table filed by JITF relies on the rate of coal
based on actual invoices for the respective months, except for a few
months for which the rates have been calculated based on the fuel
price for Kolkata appearing on the IOCL website, a copy of which was
also enclosed. The basis for adopting these rates is also noted in Note
2 below the table. The manner in which JITF had worked out the
shortfall in revenue suffered by it as a consequence of the failure, on
the part of NTPC to supply the contracted quantity of coal is,
therefore, wholly scientific, and in accordance with Section 73 of the
Contract Act.
30.17 Besides, the above table, and the figures contained therein also
stand proved in evidence. Paragraph 49 of the affidavit in evidence
tendered by CW1, Mr. Shishir Chandra Gupta, read thus:
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“49. However, as per the records maintained by the Claimant,
the Respondent provided only 842829 MT of coal to the Claimant.
I say that therefore the Claimant is entitled to damages towards loss
of revenue in sum of Rs.417,32,74,285/- (Rupees Four Hundred
Seventeen Crore Thirty Two Lakh and Seventy Four Thousand and
Two Hundred and Eighty Five) calculated on the basis of the
balance of the quantity not provided by the Respondent from 19
February 2013 until 14 June 2015, being 3794473 MT x the
applicable Project Rate, for the relevant period. I rely on details of
calculation of Rs. 417,32,74,285/- (Rupees Four Hundred
Seventeen Crore Thirty Two Lakh and Seventy Four Thousand and
Two Hundred and Eighty Five) being loss of revenue until 14 June
2015 (Annexure C-75 at Page No. 1503, Volume-V of Amended
Statement of Claim). I say that the calculation stated above has
been computed by me along with the finance team of the Claimant
and the same is correct.”
30.18 Thus, CW1, in his affidavit in evidence, proved the tabular
statement filed with the statement, and also deposed that the
calculation had been computed by him along with the finance team of
JITF. The basis of the figures in the table are forthcoming even from
the Notes below the table as well as from the mandate of Article
7.1(a)(i) of the TPA. CW1 was never cross examined on the above
assertion contained in para 49 of his affidavit in evidence. The
contents of the said paragraph have, therefore, to be taken as admitted.
30.19 Even otherwise, no evidence was led by NTPC to dispute the
basis on which the aforenoted tabular statement had been submitted by
JITF. Inasmuch as the figures contained in the statement were either
based on the contractual obligation of NTPC as envisaged by Article
7.1 (a)(i) of the TPA, or on the actual quantity of coal supplied by
NTPC and the rates emanating from the invoices for the respective
months and other acceptable evidence, there is no basis to discredit the
total figure of ₹ 417,32,74,285/-, as worked out in the table.
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30.20 Though para 83 of the arbitral award may not refer, in detail, to
the above material, we find that, in earlier paragraphs of the award, the
learned Arbitral Tribunal has distilled the evidence led before it by the
various witnesses and their cross examination, to the extent relevant.
The mere fact that there was no repetition of these facts in para 83 of
the award cannot result in a conclusion that the learned Arbitral
Tribunal has, without any application of mind, accepted the figure of ₹
417,32,74,285/- as computed by JITF.
30.21 We, therefore, are unable to agree with the learned Single Judge
on the third ground on which he has chosen to set aside the arbitral
award with respect to Claim 1, either, i.e., that, in awarding the claim
for ₹ 417,32,74,285/-, the learned Arbitral Tribunal has merely
accepted the figure cited by JITF, without undertaking any
independent computational exercise.
30.22 Resultantly, we find the decision of the learned Arbitral
Tribunal with respect to Claim 1 to be unexceptionable, and are
unable to sustain the decision of the learned Single Judge to reverse
the award to that extent.
30.23 The decision of the learned Arbitral Tribunal on Claim 1 is,
therefore, upheld.
C.II Re. Claim Nos.3 and 3A - “NTPC breached its obligation to
provide MGQ at Transfer Point for First and Second Years of
Operation Period and JITF is entitled to amount of ₹ 158,50,05,003/-
towards MGQ amount for First Year Operation Period and ₹
197,81,13,512/ towards MGQ Amount for Second Year Operation
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Period.”
31 Rival Submissions before the learned Arbitral Tribunal
31.1 These claims, as raised by JITF, were based on Article 7.3 of
the TPA. Under the said Article,
(i) the difference in the quantity of coal made available by
NTPC during any year of the operation period and 90% of the
MGQ represented a shortfall of coal as provided by NTPC,
(ii) within three weeks of the end of each period of 12
months in the operating period, JITF was required to submit, to
NTPC, the Annual Statement, disclosing the total quantity of
coal supplied to FTTP by JITF and the shortfall of supply of
coal by NTPC,
(iii) the amount payable to JITF would be the shortfall
quantity multiplied by 75% of the project rate,
(iv) on supply of the Annual Statement by JITF, the MGQ
amount was to be paid directly by NTPC to JITF,
(v) NTPC was obliged to make payment of the MGQ amount
as specified in the Annual Statement within 30 days of
submission of the Annual Statement,
(vi) NTPC was allowed to dispute the determination of the
MGQ amount and shortfall as specified in the Annual Statement
within three weeks of submission of the Annual Statement by
JITF, by notifying the dispute and submitting written
submissions in support thereof,
(vii) NTPC was nonetheless, required to pay, to JITF, the
claimed MGQ amount in the Annual Statement, subject to JITF
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refunding the amount with interest if the dispute was ultimately
resolved in favour of NTPC,
(viii) no dispute raised by NTPC in respect of the Annual
Statement would be valid till the MGQ amount was paid by it,
and
(ix) failure, on the part of the NTPC, to notify the dispute
within three weeks of the receipt of the Annual Statement
would be regarded as deemed acceptance of the Annual
Statement by NTPC, and no dispute raised by NTPC in relation
to the Annual Statement thereafter would be valid.
31.2 Admittedly, within the stipulated period of three weeks of the
expiry of the first year of the operating period, JITF had, on 23 June
2016, furnished the Annual Statement to NTPC, as required by Article
7.3. JITF submitted that, during the first year of the operating period,
NTPC had made available only 0.746 MMT of coal at the transfer
point, which fell short of the guaranteed supply of 90% envisaged in
Article 7.3 by 1.9534 MMT. JITF, therefore, claimed its entitlement
to receive, against this shortfall, an amount of ₹ 158,50,05,003/-, the
calculation of which was provided in Annexure C-83 to the SOC.
NTPC was, therefore, bound to make payment of the said MGQ
amount on or before 23 June 2016. Though JITF repeatedly wrote to
NTPC, expressing its willingness to provide an equivalent bank
guarantee as required by Article 7.3, NTPC did not pay the MGQ
amount. JITF submitted that, as NTPC had not disputed the
computation of the MGQ and the shortfall in the Annual Statement
furnished by JITF within a year thereof, it was deemed to have been
accepted and no dispute raised by NTPC in respect of the Annual
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Statement thereafter was valid.
31.3 NTPC submitted, in response, that Article 7.3 would not apply
where the shortfall in supply of coal by NTPC was not due to any
default on its part. The cause of shortfall was, therefore, relevant.
NTPC submitted that the shortfall was attributable to JITF, and not to
48
NTPC. It was submitted that JITF was aware that the MOEFCC had
revised the minimum quantity of coal which could be imported to 1.5
MMTPA. While calculating the shortfall of coal supplied in the
Annual Statement, JITF had failed to account for this directive from
the MOEFCC. With the issuance of the said directive, the MGQ under
Article 7.3 stood revised from 3 MMTPA to 1.5 MMTPA. The
shortfall, if any, had, therefore, to be reckoned vis-à-vis 90% of 1.5
MMTPA and not 90% of 3 MMTPA.
31.4 It was further submitted that JITF had never been able to
achieve the parameter level as envisaged in the TPA and that,
therefore, owing to factors for which NTPC was not responsible, JITF
was unable to accept the allocated amount of coal made available by
NTPC. NTPC further submitted that it was always ready and willing
to provide more than the revised MGQ of 1.5 MMTPA and had,
therefore, entered into contracts with ICSs for supply of 1.55 MMTPA
of coal during the period 15 June 2015 to 14 June 2016. Based on
these submissions, NTPC disputed JITF’s contention that there was
any shortfall in supply of coal by NTPC within the meaning of Article
7.3 of the TPA during the first year of the Operation Period from 15
June 2015 to 14 June 2016.
48
Ministry of Environment, Forest and Climate Change
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31.5 Even while recording the submissions, the learned Arbitral
Tribunal has, in para 93 of the arbitral award, noted the fact that it was
undisputed that the quantity of coal which was actually transported by
JITF to FTTP during the first year of the operating period between 15
June 2015 and 14 June 2016 as only 0.775 MMT.
31.6 The directive by the MOEFCC, reducing the permissible
quantity of coal which could be imported in an year to 1.5 MMT was
cited, by NTPC, as a force majeure event. JITF contested this claim. It
was submitted that the reduction in the quantity of coal, which could
be imported, as permitted by MOEFCC to 1.5 MMTPA was only
owning to failure, on the part of NTPC, to obtain the necessary
environmental clearance. The responsibility of obtaining
environmental clearance, it was submitted was the responsibility of
NTPC and not of JITF. NTPC was required to obtain the requisite
environmental clearance even before it commenced the project.
31.7 JITF submitted that, even though NTPC had defaulted in
making available to JITF, the MGQ of coal during the first year of the
operating period, JITF transported, to the FTTP, the entire quantity of
0.775 MMT which had been made available by NTPC.
31.8 It was further submitted by JITF that NTPC never had any
intention of complying with the statutory requirement of providing, to
JITF, the MGQ of 3 MMTPA of coal. It was pointed out that NTPC
had never imported 3 MMT of coal in any calendar year. The figures
disclosed by NTPC for the period 27 February 2013 to 16 November
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2016 indicated that the total quantity of coal allocated for
transportation through inland waterways was only 3.115 MMT over
all these years. During the first year of the Operating Period, even as
per the documents submitted by NTPC, tenders had been floated for
obtaining only 0.21 MMT coal. In the next year post COD, NTPC did
not issue any tender for importing coal. This indicated that the policy
of importing coal and transporting the imported coal through inland
waterways had not found favour with NTPC, which had decided,
therefore, to drastically reduce the quantity of coal imported. Though
this resulted in considerable savings to NTPC, it amounted to a breach
of NTPC’s obligations under Article 7.3 of the TPA.
31.9 JITF further contended that the MGQ had never been changed
by the parties. There was no reduction of the MGQ of 3 MMTPA as
envisaged by Article 7.3 of the TPA.
31.10 It was further submitted by JITF that the responsibility of
obtaining environmental clearance was not of JITF but of NTPC. The
environmental clearance was not for transportation of the coal or
relatable to the TPA, but was for setting up of the original Thermal
Power Project. Environmental clearance had originally been granted
by the MOEFCC to NTPC on 7 February 2007. Consequent to the
decision to commence procuring of imported coal and transport the
imported coal from inland waterways to the FTPP, the environmental
clearance originally granted on 7 February 2007 was required to be
modified after assessing the environmental impact of transport of the
imported coal through inland waterways. For this, NTPC had to
approach the MOEFCC for obtaining the necessary environmental
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clearance. Having failed to do so, NTPC was in default. JITF
submitted that instead of accepting this fact, NTPC started insisting
that JITF obtain the environmental clearance.
31.11 The reason for not being granted environmental clearance for 3
MMTPA was because NTPC had failed to conduct the necessary
studies to the satisfaction of the MOEFCC. The default was, therefore,
on NTPC’s part and NTPC could not, therefore, plead force majeure .
31.12 Expanding on this submission, JITF pointed out that NTPC had,
on 3 October 2006, submitted a proposal for grant of environmental
49
clearance in terms of Environmental Impact Assessment Notification
dated 14 September 2006 for setting up of 500 MW TTP. Coal, for
the purposes of the FTPP, was to be obtained from mines at a distance
of about 80 km by road. Environmental clearance was granted, in
respect to the said application, by the MOEFCC, on 7 February 2007,
valid for a period of five years. Para 6 of the communication of the
MOEFCC granting environmental clearance clearly stated that if there
was any deviation or alteration in the project from that which was
submitted to the MOEFCC for clearance, NTPC was required to make
a fresh reference to the MOEFCC to assess adequacy of the conditions
imposed, and incorporate additional environmental protection
measures required, if any. The project conceived under the TPA,
executed on 11 August 2011, was for carriage of blended coal through
inland waterways and not through rail or road. The aspect of
environmental impact of the said project had, therefore, to be
considered afresh. A fresh reference to the MOEFCC by NTPC was,
49
“EIA Notification”, hereinafter
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therefore, necessary.
31.13 The environmental clearance obtained by NTPC had, therefore,
nothing to do with the project envisaged under the TPA, as the
proponent of the project environmental clearance had necessarily to be
obtained by NTPC, as per amendment dated 6 April 2011 to the EIA
Notification dated 14 September 2006. A fresh application for
obtaining environmental clearance was also required as per para 6 of
the earlier environmental clearance granted vide letter dated 7
February 2007. In as much as environmental clearance was being
granted for the entire TPA and not merely the project envisaged under
the TPA, the responsibility of obtaining environmental clearance was
wholly of NTPC and not of JITF.
32 Analysis by learned Arbitral Tribunal
32.1 The learned Arbitral Tribunal found substance in JITF’s
contention that, as there was a change of the policy with respect to the
manner in which coal was to be procured and transported, with a
decision having been taken to procure imported blended coal and
convey it to the TPP through Inland Waterways, it was NTPC’s
responsibility, even before issuing the tender for the present project, to
obtain environmental clearance from the MOEFCC, as this amounted
to a deviation from the earlier manner of procurement of coal for
which environmental clearance had been granted on 7 February 2007.
NTPC ultimately applied to the MOEFCC, seeking permission to use
blended coal and transport the blended coal to the FTPP through NW-
1 on 22 May 2012. The application referred to the earlier
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environmental clearance granted by the MOEFCC on 7 February
2007. This application was considered by the reconstituted Expert
50
Appraisal Committee on EIA for thermal power and coal mining
projects, regarding the requirement or possibility of amending the
environmental clearance already granted. The minutes of the meeting
of the reconstituted EAC had been placed on record by JITF as
Annexure C-12 to the SOC. The EAC came to the conclusion that the
likely impact on fisheries was an issue which required to be examined.
Accordingly, the EAC directed the initiation of a study to examine a
disaster management strategy including fire and oil spill impact on
marine life, ecology etc,. and submission of the study report so that
further consideration for continuing transportation of imported coal
through Inland Waterways could be examined. NTPC was, however,
not able to produce the necessary study report within the time granted
by the EAC. It applied, therefore, for extension of time on 31 July
2014. One year’s extension was granted, which also came to an end
on 30 July 2015. As there was no requisite report even by that date,
the EAC, in its meeting dated 26 June 2015, recommended for
continuation of the permission for transportation of imported blended
coal through Inland Waterways upto a maximum of 1.5 MMTPA for a
period of one year till 30 July 2016, subject to NTPC submitting the
present findings of the study after a period of six months.
32.2 These facts, held the learned Arbitral Tribunal, made it clear
that the environmental clearance obtained by NTPC was for the TPP
and that, therefore, NTPC ought to have obtained modified
environmental clearance for using imported blended coal and
50
“EAC”, hereinafter
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transportation thereof through Inland Waterways before
commencement of execution of the project envisaged by the TPA. As
NTPC could not carry out the requisite study within the time granted
by the EAC, the EAC allowed importation and usage and transport
only of a reduced quality of coal. Thus, therefore, held the learned
Arbitral Tribunal, as the default was on the part of NTPC, it could not
constitute either a change in law or a force majeure event. JITF was
not concerned or involved in this exercise, as the environmental
clearance related to the entire Thermal Power Plant and not to the
project envisaged by the TPA.
32.3 The learned Arbitral Tribunal also noted that there had been in
fact no change in Article 7.3 of the TPA. The MGQ envisaged by the
said Article remained the same, i.e., 3 MMTPA. No alternation was
effected thereto.
32.4 The learned Arbitral Tribunal next adverted to Article 7.1(a)(ii)
of the TPA. It was noticed that this clause obligated NTPC, through its
ICS, to ensue delivery of coal at the transfer point on Fairly Even
51
Spread basis and also to furnish, to the ICS, a quarterly schedule of
quantity with a tentative month wise breakup proposed to be delivered
at the TPP. The learned Arbitral Tribunal found substance in JITF’s
contention that NTPC had not only failed to ensure delivery of the
MGQ at the transfer point, but had also failed to furnish the ICS a
quarterly schedule of quantity with tentative month wise breakup of
the quantity of imported coal proposed to be delivered at the power
51
“FES”, hereinafter
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station. The learned Arbitral Tribunal further observed that, even in
the arbitral proceedings, no such quarterly schedule of quantity,
required to be prepared by NTPC and disclosed to the ICS, was
produced.
32.5 The learned Arbitral Tribunal found no substance in NTPC’s
repeated emphasis on the fact that it had entered into arrangements
with the ICS for supply of coal. The learned Arbitral Tribunal held
that there was no evidence to indicate that 3 MMTPA of coal, as
required by Article 7.3, was ever delivered to NTPC at the transfer
point. Documentary evidence placed on record by JITF indicated that
NTPC had not even instructed the ICS to supply the requisite quantity
of coal to meet the MGQ requirement. The evidence which had been
produced on record by NTPC also established that the quantity of coal
in respect of which NTPC had contracted with the ICS was far less
than the MGQ. In the first year of operation post COD, NTPC had
supplied only 0.746 MMT coal, with a shortfall of 1.9534 MMT. The
entire quantity of coal made available by NTPC had been transported
by JITF to the FTPP through NW-1.
32.6 The learned Arbitral Tribunal also found substance in JITF’s
emphasis on the fact that, during the entire period from 2013 to 2017,
only 3.115 MMT of coal had been procured.
32.7 It was further observed by the learned Arbitral Tribunal that the
additional documents filed with the counter claim of NTPC contained
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52
the various Notifications of Award of contract for purpose of
imported coal by NTPC. The figures in these NOAs tallied with the
figures in the table prepared by JITF. The last NOA dated 13 August
2015 issued by NTPC was in respect of a tender issued in February
2015. Post COD, NTPC did not issue any tender for import of coal.
32.8 The learned Arbitral Tribunal noted that RW-3 Amber Kumar,
in his cross examination, had been specifically called upon to disclose
any document which proved that NTPC had procured 3 MMT of coal
in any year for transportation through Inland Waterways. RW-3 relied
on the tender awarded in August 2015 which was for a quantity of
2.25 MMT. This document, too, noted the learned Arbitral Tribunal,
indicated that the award of tender was not just for transportation to
FTPP through Inland Waterways but also covered five other power
stations of NTPC. For the FTPP, the quantity allocated for
transportation was a mere 0.21 MMT.
32.9 Thus, there was no evidence to indicate that (i) NTPC had made
requisite efforts for obtaining the environmental clearance for
transportation of imported blended coal through the Inland Waterways
before commencement of execution of the project under the TPA or
(ii) it had actually made available the MGQ of 3 MMTPA during any
year.
32.10 The learned Arbitral Tribunal thereafter proceeded to examine
the entitlement of JITF, as a consequence of these defaults by the
52
“NOA”, hereinafter
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NTPC. It was noted, in the arbitral award, that JITF had made
substantial investments in the CUMHS. The payment mechanism
under the TPA and the CTA was such that JITF would obtain return
on the investments through payments made for transportation of the
coal made available at the transfer point by NTPC. In view of the
incorporation of the MGQ in Article 7.3 of the TPA, it was inferable
that, at the time of envisaging the project, the operator was to recover
the costs of infrastructure and other operational expenses, along with a
reasonable profit, over a period of seven years, during each of which
year it was entitled to be supplied the MGQ of 3 MMTPA of imported
coal. This requirement of providing, to JITF, the MGQ of 3 MMTPA
every year, as contained in Article 7.3 of the TPA, was not subject to
any condition precedent, save fixing of the COD. Inasmuch as the
entire scheme of the project was based on this guarantee and the draft
TPA was drafted by NTPC/IWAI with no ambiguity in the clause, the
learned Arbitral Tribunal held that it was binding on NTPC.
32.11 The learned Arbitral Tribunal noted that, during the first year of
the operation period, from 15 June 2015 to 14 June 2016, NTPC made
available only 0.746 MMT and, during the second year of the
operation period from 15 June 2016 to 14 June 2017, NTPC made
available only 0.2 MMT of imported coal for transportation by JITF.
JITF ensured that the entire quantity of coal made available was
transported by it through NW-1 to the FTPP. The shortfall quantity
for the first year of the operation period was 1.9534 MMT and for the
second year of the operation period was 2.408 MMT. The contractual
entitlement of JITF, when tallied against the MGQ amount was,
therefore, ₹ 158,50,05,003/- for the first year of the operation period
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and ₹ 197,81,13,512/- for the second year.
32.12 Following this analysis, the learned Arbitral Tribunal holds
thus, in paras 128 to 131 of the arbitral award:
“128. NTPC during the entire Arbitration proceedings, failed to
show any evidence that it has actually placed order for imported
coals for a particular year to be transported through inland
waterways for its Farakka plant for 3 MMT. Despite repeated
questions from the Tribunal, NTPC has not come up with any clear
answer. The documents filed by NTPC like contract for supply of
coal (from 2013 to 2017, NTPC entered into contracts for only
3.115 MMT of imported coal through waterways) also does not
reflect that at any given year during the operation period, it has
placed orders for supply of 3 MMT imported coal. In Minutes of
Meeting dated 13.10.2016 between IWAI, NTPC and JITF, the
NTPC admitted that it did not give 3 MMTPA to JITF.
129. However, as per TPA, it was the obligation of NTPC to
provide the coal at the transfer point and which admittedly, NTPC
has failed to do. Admittedly, JITF delivered the entire quantity of
coal i.e. 0.746 MMT that was made available to it at Transfer Point
in the First Year Operation Period.
130. Further, from the documents filed by NTPC, it is clear that
the total allocation for waterways for this project (i.e. from October
2013 to June 2017) was 2.33 ММТ.
131. The main trigger point for Article 7.3, i.e., the failure of
NTPC to provide coal at the transfer point, is satisfied in the
present case, as it has failed to show any evidence that it actually
provided coal to the tune of 3 MMT per annum at the transfer point
and in absence of any evidence in that regard, Article 7.3 triggers
and JITF is eligible to get the MGQ amount.”
32.13 The learned Arbitral Tribunal, thereafter, proceeds to examine
JITF’s claim for payment of the guaranteed MGQ amount for the
second year of the operation period. On reasoning which is broadly
similar to that adopted by the learned Arbitral Tribunal in respect of
the first year, JITF’s claim for the second year was also found to be
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justified. The learned Arbitral Tribunal observed, in the arbitral award,
that
(i) NTPC had never disputed the annual statement or
computation, therein, of the MGQ amount or the shortfall of
coal supply, as provided by JITF for the second year of the
operation period and had, thereby, waived its right to raise any
dispute regarding the MGQ amount or the shortfall in making
available the MGQ during the second year,
(ii) admittedly, the entire quantity of imported coal of 0.292
MMT provided by NTPC was delivered by JITF to the FTPP
during the second year,
(iii) the fact that NTPC was neither ready nor willing to
provide JITF the MGQ of coal for the second year of the
operation period was apparent from the fact that
(a) the last tender issued by NTPC for obtaining
imported coal was in February 2015, before the
commencement of the second operation period, and
(b) NTPC’s own Annual Statement for the year 2016-
2017 expressly stated that, during the said year, NTPC
had imported 1.09 MMT of coal and had, by thus
reducing coal imports by 85%, saved ₹ 8000 crores,
(iv) Article 7.1(a)(iii) of the TPA obligated NTPC to provide
imported coal at the transfer point on FES basis,
(v) MOEFCC had, on 3 February 2017, granted extension of
permission to import coal up to 31 Mach 2018 and had also
allowed import of coal up to 3 MMTPA, from the permissible
limit of 1.5 MMTPA for the first year of the operation period,
(vi) despite this NTPC, failed to provide, even during the
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second year of the operation period, the guaranteed MGQ of 3
MMTPA as per Article 7.3,
(vii) though the reconstituted EAC had granted extension to
NTPC for transportation of coal up to 30 July 2016 with a
direction to NTPC to submit findings of the study as ordered by
it, NTPC made an application for extension of environmental
clearance only five days prior to the expiry of the existing
environmental clearance on 25 July 2016,
(viii) in such circumstances, NTPC could not seek to benefit by
its own wrong and plead force majeure owing to non
availability of environmental clearance beyond 30 July 2016,
(ix) thus, all circumstances envisaged in Article 7.3 of the
TPA, as would justify JITF’s claim for payment of the MGQ
amount stood satisfied,
(x) the only pre condition for triggering of JITF’s entitlement
to the MGQ amount under Article 7.3 was providing of the
COD by NTPC, and it was not in dispute that the COD had
been achieved on 15 June 2015 as duly certified by NTPC, and
(xi) inasmuch as the entitlement of JITF to the MGQ amount
was dependent only on achieving of COD, and the COD of 15
June 2015 had been certified by NTPC itself, JITF was ipso
facto entitle to be paid the entire MGQ amount for the period of
seven years from the date of the COD.
32.14 The learned Arbitral Tribunal further observed that, during the
proceedings, a query had been posed to NTPC, by the learned Arbitral
Tribunal, as to how JITF would be recompensed if the guaranteed
MGQ of coal was not provided by NTPC, to which NTPC responded
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that it would pay the MGQ amount as per Article 7.3 of the TPA. In
that view of the matter, NTPC could not dispute the entitlement of
JITF to be paid the MGQ amount in terms of Article 7.3 of the TPA,
especially as, on its own showing and on the basis of documents on
record, it was clear that NTPC had stopped importing coal from the
2016-2017 financial year.
32.15 Following the above reasoning, the learned Arbitral Tribunal, in
para 151 of its arbitral award, awarded, to JITF, the claim of ₹
158,50,05,003/- towards the MGQ amount for the first year of
operation period and ₹ 197,81,13,512/- towards the MGQ amount for
the second year of the operation period.
33 The Impugned Judgment
33.1 From paras 128 to 132, the impugned judgment merely sets out
the discussion and conclusion of the learned Arbitral Tribunal on
Claims 3 and 3A. Thereafter, in para 133, the learned Single Judge has
observed that the learned Arbitral Tribunal has “taken a literal and
strict interpretation of Article 7.3 and has simply awarded the amount
on the basis of the shortfall quantity”. In para 134, the learned Single
Judge proceeds to observe that even if, arguendo , it were to be
presumed that NTPC did not obtain environmental clearance in time,
“the fact of the matter” was that the importable quantity of coal was
reduced from 3 MMT to 1.5 MMT with effect from 30 July 2015.
33.2 Thereafter, after referring to the judgment of the Supreme Court
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53
in Nabha Power Ltd. v. Punjab State Power Corporation Ltd , the
learned Single Judge identifies what, according to him were the issues
involved in respect of Claims 3 and 3A thus, in para 136:
“The core question in the present case is whether the damages that
have been awarded by the learned Tribunal by inserting Clause 7.3,
at all the faces, be it pre-COD or post-termination, fulfils the test of
“business efficacy”. Secondly, whether the view of the Tribunal of
calculating the MGQ at the rate of 2 MMTPA or 3 MMTPA, even
after its reduction by the EC to 1.5 MMTPA passes the test of
reasonableness.”
33.3 Thereafter, in para 137, the learned Single Judge observes and
holds as under:
“137. It is also necessary to refer to Section 28, sub-section 3 of
the A&C Act, which also mandates that the learned Arbitrator shall
take into account the terms of the contract and trade usages
applicable to the transaction. It is correct that the Courts are
required to keep their hands off and follow the policy of minimum
judicial intervention, but at the same time, the awards should be
such that it should not prick the conscience of the Court. It is also
to be seen that when the quantity of coal had been reduced, the
“Doctrine of impossibility or doctrine of frustration” of performing
the contract would come into play. The NTPC had argued
consistently that they had contractual arguments close to 4 MMT
of coal, out of which, 1.5 MMT was reserved solely for Farakka
TPP which was more than the quantity permitted by the EC for the
First Year Operation Period. It has also been argued that Clauses D
and E of the bid document dated 09.02.2015 confers flexibility and
empowers NTPC to make revisions in the quantity allocated not
only from one mode of transportation to another but also from one
Station to another, depending upon the requirement. It has
consistently been pleaded that as per Clause 7.1, the coal was to be
provided on a fairly evenly spread basis and NTPC was to furnish
ICS, a quarterly schedule of quantity with a tentative month-wise
break up proposed to be delivered at the Power station. It was the
responsibility of the international coal supplier and the JITF to
coordinate and distribute the quarterly coal supplies in all the
months of the quarter. The learned AT has attributed the entire
default to NTPC. Arguments raised by learned SG that the
respondent never adhered to the time schedule of unloading and
53
(2018) 11 SCC 508
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transportation of 1200 MT per day within 5 days, and their average
unloading weight was 8300 MT per day and the minimum and
maximum time taken for coal transportation was 34 days and 163
days as against 5 days, cannot be just brushed aside.”
33.4 The learned Single Judge then refers to the affidavit in evidence
of CW1 Shishir Chandra Gupta regarding delays which were not
attributable to NTPC, and agrees with the submission of the learned
Solicitor General that these admissions were not taken into account by
the learned Arbitral Tribunal.
33.5 The impugned judgment then proceeds, in para 140 to 142, to
hold as under:
“140. It is pertinent to mention that learned AT irrespective of the
directions of MoEF has calculated the shortfall, taking into account
3 MMT. It is quite surprising how the NTPC could have violated
the directions given by authority and opened itself to various kinds
of prosecutions and adverse consequences. The perseverance of the
environment is the duty of one and all and violation of the same
cannot be allowed to be carried out at any cost. It becomes the
statutory obligation of everybody to comply with the directions
relating to the environment. Thus, the finding of the learned
Arbitral Tribunal in calculating the MGQ taking into account 3
MGQ on the face of it, is perverse. In regard to the responsibility of
getting the EC, the learned AT has proceeded on the premises that
NTPC being the project proponent, was required to take the EC.
However, in this regard, it is necessary to refer to the following
provisions of the TPA:-
“Article 3.1C (ii) puts an obligation on the operator to
procure all applicable permits/licenses/clearances,
unconditionally, or if subject to conditions, then all such
conditions must have been satisfied in full and such
applicable permits/licenses/clearances are kept in full force
and effect during the construction and operation of the
project.”
It is also necessary to refer to clause 7.1C (vii) which puts an
obligation on the operator to comply with all applicable laws and
obtain all applicable permits in all material respects.
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141. It is also pertinent to mention here as borne out from the
record that NTPC, vide letter dated 25.02.2014, invited the
attention of the respondent to the condition precedent of the
operator which is in response to the letter of the respondent dated
20.02.2014, whereby, a request was made for reimbursement of fee
against studies awarded by JITF on CIFRI for environmental
clearance of Farakka IWT Project. NTPC, inviting the attention on
the provisions of TPA and clause 3.1C of the TPA reiterated that
all the clearances required for the project are to be taken by the
operator. It is also pertinent to mention here the letter dated
30.04.2014, which was also related to the operational delays on the
part of the respondent. The perusal of the record indicates that
consent to operate the project dated 16.09.2016 was taken by the
respondent and the responsibility of NTPC was limited to
facilitating the clearance. The Court considers that after reduction
by MoEF in the First Year Operation Period from 3 MMTPA to
1.5 MMTPA, has to be taken into account. It is a basic principle
that what is prohibited by law cannot be directed to be enforced in
any manner.
142. The learned AT has also allowed the claim of the JITF
towards reimbursement of Rs.42,93,914/- on account of the fee
paid to CIFRI on the ground that NTPC is required to obtain prior
EC for the use of blended coal and for transportation of coal from
Sandheads to Farakka TPP through NW-1. It was also noted that
on account of the delay on the part of NTPC to undertake the
study, JITF engaged CIFRI on behalf of NTPC, in the interest of
the Project for conducting the required study and informed NTPC
vide its letter dated 20.02.2014 that the subject study report had
been issued to CIFRI on behalf of NTPC to avoid delay. Learned
AT rejected the contention of NTPC that in an internal meeting of
NTPC, IWAI and JITF, it was decided that JITF would conduct the
study and also did not agree to discharge NTPC of its obligations
as IWAI had agreed to pay JITF the cost of CIFRI. The discussion
made hereinabove makes it clear that it was not the responsibility
of the petitioner to take EC clearance. It has to be understood that
initial EC was taken by NTPC for main Project. However,
subsequently, TPA was executed for the project, and the terms of
the TPA specifically provides it to be the responsibility of JITF.
Therefore, on the face of it, the NTPC cannot be held liable for
this.”
34 Analysis
34.1 We feel, with respect, that the findings of the learned Arbitral
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Tribunal with respect to Claims 3 and 3A were practically
impregnable to challenge. The learned Arbitral Tribunal has,
essentially, held that as there was a failure on the part of NTPC, to
make available to JITF, during the first and second years of the
operation period following the COD, the MGQ of imported coal, and
as the plea of change in law and force majeure was unsustainable, the
inexorable consequence in law was that JITF was entitled to be paid
on the basis of MGQ rates envisaged in Article 7.3 of the TPA. It is
difficult to understand how this finding could invite interference,
much less under Section 34 of the 1996 Act. By no stretch of
imagination, into our mind, can it be said that the observations and the
findings of the learned Arbitral Tribunal suffered from patent
illegality, as the learned Single Judge has chosen to hold.
34.2 There is no dispute about the fact that NTPC did not make
available, to JITF, during the first and second years of the operation
period, the MGQ of coal as required by Article 7.3.
34.3 The plea of NTPC that, by virtue of the reduction in the
permissible quantity of imported coal, which could be transported by
inland waterways, by the MOEF, to 1.5 MMTPA, Article 7.3 of the
TPA automatically stood modified, had merely to be urged to merit
rejection. The law does not recognize any such modification of terms
of a contract entered into between the parties of their own volition.
Any modification of the TPA could only be by consent of the parties.
The learned Arbitral Tribunal correctly noted that Article 7.3 of the
TPA remained unchanged throughout its life. The MGQ of 3
MMTPA, specifically stipulated therein, was never changed, much
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less altered to 1.5 MMTPA or any other figure.
34.4 The result is that the impugned judgment, in fact, is contrary to
the terms of the contract . Though Article 7.3 of the TPA always held,
and continued to hold, that NTPC was required to provide an MGQ of
3 MMTPA imported coal during all 7 years following the COD, i.e.
during the entire operation period, the learned Single Judge, in the
impugned judgment, modified this figure of 3 MMTPA to 1.5
MMTPA. This amounts to re-writing the contract. Re-writing of a
contract is by itself a fatal flaw in any arbitral award. In the present
case, in fact the position is that, while the learned Arbitral Tribunal
applied Article 7.3 as it stood, the learned Single Judge has modified
Article 7.3 by substituting the figure of 3 MMTPA contained in the
said clause to 1.5 MMTPA following the communication dated 30 July
2015 of the MOEFCC. Even on this sole ground, we are of the opinion
that the impugned judgment of the learned Single Judge cannot
sustain.
34.5 The plea of force majeure and change in law as advanced by
NTPC, were rightly rejected by the learned Arbitral Tribunal. Force
majeure was urged by NTPC on the ground that the MOEFCC had, by
its communication dated 30 July 2015, reduced the quantity of
importable blended coal from 3 MMTPA and granted environmental
clearance for importation of blended coal only to the extent of 1.5
MMTPA. This, could not, however, constitute force majeure , as the
decision to allow importation and transport by inland waterways of
only 1.5 MMTPA imported coal was entirely attributable to defaults
on the part of the NTPC. NTPC failed to provide the necessary study
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report to the reconstituted EAC, regarding the possible adverse effects
on marine, ecology and life, in the event of spillage and other such
mishaps during carriage of the coal by the waterways. The learned
Arbitral Tribunal held that a party cannot plead force majeure on the
basis of circumstances which have arisen owing to its own defaults.
34.6 The impugned judgment does not, however, advert to this
aspect at all.
34.7 In fact, in para 136, the impugned judgment has noted one of
the “core questions” arising for considerations as “whether the
damages that have been awarded by the learned Arbitral Tribunal by
inserting Article 7.3 at all the faces, be it pre-COD or post termination
fulfils the test of business efficacy. To our mind, no such issue really
arose for consideration in so far as Claims 3 and 3A were concerned.
The simple issue for consideration was whether the learned Arbitral
Tribunal was correct in directing payment, by NTPC to JITF, of the
amount to which JITF would have been entitled during the first and
second years of the operation period, had NTPC adhered to its
contractual obligation to provide 3 MMTPA imported coal for
transportation in each of these years. Considerations of business
efficacy could find no place in such a deliberation which was entirely
based on the express wordings of Article 7.3 of the TPA.
34.8 The second issue arising for consideration, as per the learned
Single Judge in para 136 of the impugned judgment, too, to our mind,
does not really arise. The learned Single Judge has identified the
second issue as being “whether the view of the learned Arbitral
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Tribunal of calculating the MGQ at the rate of 2 MMTPA or 3
MMTPA, even after its reduction by the EC to 1.5 MMTPA passes the
test of reasonableness”. No such issue arose for consideration, either,
to our mind, as the MGQ of 3 MMTPA, stipulated in Article 7.3 of the
TPA, was never altered. The EC could not have altered the terms of
the TPA executed among NTPC, JITF and IWAI. The learned Single
Judge has, therefore, to our mind, misdirected himself by presuming
that there was a reduction of the stipulated MGQ of 3 MMTPA,
specified in Article 7.3 of the TPA, to 1.5 MMTPA. No such
modification took place in any point of time.
34.9 Thus, the impugned judgment proceeds by failing, at the very
outset, to identify the actual issue in controversy.
34.10 Once there was failure, on the part of NTPC, in making
available the statutory MGQ of imported coal during the first and
second years of the operation period, and NTPC could not avail the
defence of force majeure or change in law, the only sequitur in law
would be that NTPC would be liable to pay, to JITF, the MGQ
amount worked out in terms of the Article 7.3 of the TPA. The
working of this amount had specifically been provided by JITF along
with its SOC, and the computation thereof has never been disputed in
any point of time. In any event, the computation was based on the
terms of Article 7.3 of the TPA themselves, and was not, therefore,
open to question.
34.11 The learned Single Judge has also, to our mind, erred in
importing the principle of impossibility or frustration of contract.
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Frustration of contract cannot be pleaded by a party who is itself
responsible for the circumstances in which, according to the party, it
was rendered impossible to execute the contract.
34.12 The reliance, by the learned Single Judge, on the affidavit in
evidence of CW1 Shishir Chandra Gupta is also, to our mind,
misguided. Paras 69 and 165 of the said affidavit, on which the
learned Single Judge places reliance, and which stand reproduced in
para 138 of the impugned judgment, read thus:
“69. I say that the bottlenecks being faced by the Claimant were
in the knowledge of the Respondent. I say that the Respondent
stated that after having gone through the problem of less frequency
of barge movement, the Respondent identified the following
difficulties, apart from other issues, namely (i) inadequate night
navigation lights and markers for night navigation; (ii) frequently
changing channel depth, and with shifting of channels, the same
are not marked; and (iii) Vessels keep waiting at Farakka and
Kolkata due to shortage of pilots of IWAI; (iv) Bridge Pillars are
not marked and lighted which is dangerous for night navigation. I
say that the Respondent asked IWAI to initiate required action to
increase the barge operation for more coal intake at Farakka. I refer
to Respondent's letter dated 16 January 2014 which is exhibited
herein as Exhibit CW-1/25.
165. I state that the Claimant vide a separate letter dated 20
January 2016 (Annexure C-39of the Amended Rejoinder to the
Statement of Defence) addressed to IWAI and marked copy to the
Respondent, highlighted the alarming level of decrease in the water
availability which was 1.5-1.7 meters in the Farakka jetty area and
2 to 2.3 meters in Chain age 333, 388, and 529. The Claimant also
informed that 9 of its barges which were carrying parcel load of
just 1,250 MT were stuck in the channel at that time due to the
sudden drop of 30 cms. of water level in 24 hours. I state that the
Claimant requested IWAI to take immediate measures to increase
the navigational depth in the channel enabling the Claimant to
comply with the cargo requirements due to the reason that the
barge movements were on hold as a result of the shortage in water
levels, which consequently caused pile up of cargo at Transfer
Point and an OGV waiting to be unloaded at anchorage with
70,000 MT, the Claimant vide the said letter also highlighted that
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the decrease in water levels was resulting into delays in unloading
of cargo and deviation from import schedule as agreed between the
Claimant, the Respondent, and the ICS, which was not attributable
to the Claimant.”
Following the extracts of the above paras from the deposition of CW1,
the learned Single Judge observes, towards the beginning of para 139
of the impugned judgment, that the learned Solicitor General had
rightly stated that these admissions were not taken into account by the
learned Arbitral Tribunal.
34.13 To our mind, the “admissions” contained in the afore-extracted
paras from the affidavit in evidence of CW1 do not in any way answer
the issue of short supply of imported coal by NTPC to JITF during the
first two years of the operation period, following the COD. As such,
we do not see how these passages from the affidavit in evidence of
CW1 would militate against the award rendered by the learned
Arbitral Tribunal in respect of Claims 3 and 3A of JITF.
34.14 We are also unable to agree with the observations and findings
of the learned Single Judge that the obligation of NTPC to provide the
MGQ of imported coal to JITF, as envisaged by Article 7.3 of the
TPA, stood reduced from 3 MMTPA to 1.5 MMTPA. The learned
Arbitral Tribunal has correctly held that this reduction took place only
because of the failure on the part of NTPC to obtain environmental
clearance which, in turn, was attributable to its own defaults. The
learned Single Judge has not, at any point of the impugned judgment,
dealt with the learned Arbitral Tribunal’s finding that NTPC, as the
project proponent, was required to obtain environmental clearance.
The learned Arbitral Tribunal has correctly relied, in this context, on
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amendment dated 6 April 2011 to the EIA notification dated 14
September 2006. For ready reference, the relevant clauses of the
notification and the amendment may be reproduced as under:
14th September, 2006
EIA Notification
S.O. 1533 Whereas, a draft notification under sub-rule (3) of Rule
5 of the Environment (Protection) Rules, 1986 for imposing certain
restrictions and prohibitions on new projects or activities, or on the
expansion or modernization of existing projects or activities based
on their potential environmental impacts as indicated in the
Schedule to the notification, being undertaken in any part of India1,
unless prior environmental clearance has been accorded in
accordance with the objectives of National Environment Policy as
approved by the Union Cabinet on 18th May, 2006 and the
procedure specified in the notification, by the Central Government
or the State or Union territory Level Environment Impact
Assessment Authority (SEIAA), to be constituted by the Central
Government in consultation with the State Government or the
Union territory Administration concerned under sub-section(3) of
54
section 3 of the Environment (Protection) Act, 1986 for the
purpose of this notification, was published in the Gazette of India,
Extraordinary, Part II, section 3, sub-section (ii) vide number S.O.
1324 (E) dated the 15th September ,2005 inviting objections and
suggestions from all persons likely to be affected thereby within a
period of sixty days from the date on which copies of Gazette
containing the said notification were made available to the public;
*
Now, therefore, in exercise of the powers conferred by sub-section
(1) and clause (v) of sub-section (2) of section 3 of the
Environment (Protection) Act, 1986, read with clause (d) of sub-
rule (3) of rule 5 of the Environment (Protection) Rules, 1986 and
in supersession of the notification number S.O. 60 (E) dated the
27th January, 1994, except in respect of things done or omitted to
be done before such supersession, the Central Government hereby
directs that on and from the date of its publication the required
54
3. Power of Central Government to take measures to protect and improve environment.—
*
(3) The Central Government may, if it considers it necessary or expedient so to do for the
purposes of this Act, by order, published in the Official Gazette, constitute an authority or
authorities by such name or names as may be specified in the order for the purpose of exercising
and performing such of the powers and functions (including the power to issue directions under
Section 5) of the Central Government under this Act and for taking measures with respect to such
of the matters referred to in sub-section (2) as may be mentioned in the order and subject to the
supervision and control of the Central Government and the provisions of such order, such authority
or authorities may exercise the powers or perform the functions or take the measures so mentioned
in the order as if such authority or authorities had been empowered by this Act to exercise those
powers or perform those functions or take such measures.
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construction of new projects or activities or the expansion or
modernization of existing projects or activities listed in the
Schedule to this notification entailing capacity addition with
change in process and or technology shall be undertaken in any
part of India only after the prior environmental clearance from the
Central Government or as the case may be, by the State Level
Environment Impact Assessment Authority, duly constituted by the
Central Government under sub-section (3) of section 3 of the said
Act, in accordance with the procedure specified hereinafter in this
notification.
(Emphasis supplied)
2. Requirements of prior Environmental Clearance (EC):- The
following projects or activities shall require prior environmental
clearance from the concerned regulatory authority, which shall
hereinafter referred to be as the Central Government in the
Ministry of Environment and Forests for matters falling under
Category ‘A’ in the Schedule and at State level the State
Environment Impact Assessment Authority (SEIAA) for matters
falling under Category ‘B’ in the said Schedule, before any
construction work, or preparation of land by the project
management except for securing the land, is started on the project
or activity:
(i) All new projects or activities listed in the Schedule
to this notification;
(ii) Expansion and modernization of existing projects or
activities listed in the Schedule to this notification with
addition of capacity beyond the limits specified for the
concerned sector, that is, projects or activities which cross
the threshold limits given in the Schedule, after expansion
or modernization;
(iii) Any change in product - mix in an existing
manufacturing unit included in Schedule beyond the
specified range.
*
6. Application for Prior Environmental Clearance (EC):- An
application seeking prior environmental clearance in all cases shall
be made in the prescribed Form 1 annexed herewith and
Supplementary Form 1A, if applicable, as given in Appendix II,
after the identification of prospective site(s) for the project and/or
activities to which the application relates, before commencing any
construction activity, or preparation of land, at the site by the
applicant. The applicant shall furnish, along with the application, a
copy of the pre-feasibility project report except that, in case of
construction projects or activities (item 8 of the Schedule) in
addition to Form 1 and the Supplementary Form 1A, a copy of the
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conceptual plan shall be provided, instead of the pre-feasibility
report.
*
9. Validity of Environmental Clearance (EC): The “Validity
of Environmental Clearance” is meant the period from which a
prior environmental clearance is granted by the regulatory
authority, or may be presumed by the applicant to have been
granted under sub paragraph (iv) of paragraph 7 above, to the start
of production operations by the project or activity, or completion of
all construction operations in case of construction projects (item 8
of the Schedule), to which the application for prior environmental
clearance refers. The prior environmental clearance granted for a
project or activity shall be valid for a period of ten years in the case
of River Valley projects (item 1(c) of the Schedule), project life as
estimated by Expert Appraisal Committee or State Level Expert
Appraisal Committee subject to a maximum of thirty years for
mining projects and five years in the case of all other projects and
activities. However, in the case of Area Development projects and
Townships [item 8(b)], the validity period shall be limited only to
such activities as may be the responsibility of the applicant as a
developer. This period of validity may be extended by the
regulatory authority concerned by a maximum period of five years
provided an application is made to the regulatory authority by the
applicant within the validity period, together with an updated Form
1, and Supplementary Form 1A, for Construction projects or
activities (item 8 of the Schedule). In this regard the regulatory
authority may also consult the Expert Appraisal Committee or
State Level Expert Appraisal Committee as the case may be.
MINISTRY OF ENVIRONMENT AND FORESTS
NOTIFICATION
New Delhi, the 4th April, 2011
S.O. 695(E).— Whereas by notification of the Government of India
in the Ministry of Environment and Forests vide number S.O.
1533(E), dated the 14th September, 2006 issued under sub-section
(1) and clause (v) of sub-section (2) of section (3) of the
Environment (Protection) Act, 1986 read with clause (d) of sub-
rule (3) of rule 5 of the Environment (Protection) Rules, 1986, the
Central Government directed that on or from the dates of its
publication, the required construction of new projects or activities
or the expansion or modernization of existing projects or activities
listed in the Schedule to the said notification entailing the capacity
addition with change in process and or technology shall be
undertaken in any part of India only after prior environmental
clearance from the Central Government or as the case may be, by
the State level Environment Impact Assessment Authority, duly
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constituted by the Central Government under sub-section (3) of
section 3 of the said Act in accordance with the procedure specified
therein;
*
Now therefore, in exercise of the powers conferred by sub-section
(1) and clause (v) of sub-section (2) of section 3 of the said
Environment (Protection) Act, read with clause (d) of sub-rule (3)
of rule 5 of the said Environment (Protection) Rules, the Central
Government hereby makes the following amendments in the said
Notification, namely:-
In the said notification, -
(I) In para 6, for the existing words "An application seeking
prior environmental clearance in all cases shall be made", the
following words shall be substituted, namely:-
"An application seeking prior environmental clearance in
all cases shall be made by the project proponent ".
(Emphasis supplied)
34.15 Moreover, as has been correctly noted by the learned Arbitral
Tribunal, the environmental clearance was for operation of the entire
TPP. The clearance had originally been obtained for 3 MMTPA when
coal was being sourced from the quarry located 80 km away. The
sourcing of this coal was obviously not by sea, but was by road.
While granting environmental clearance for procuring the said coal,
the MOEFCC had itself stated that if, at a later point, there was any
deviation, NTPC would be required to apply afresh so that the
environmental impact of such deviation could be assessed and any
further safeguards, if required, could be put in place before granting
environmental clearance. It was, therefore, incumbent on NTPC to
reapply for environmental clearance once it had decided to use
imported coal, transported through Inland Waterways, to the FTPP.
The environmental impact of such transportation had necessary to be
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examined afresh. It was for this reason that the EAC directed NTPC
to conduct a study and furnish the report to the EAC. NTPC, despite
taking an extension in that regard, could not comply with the request.
It was in these circumstances that clearance was granted only for
transportation of 1.5 MMTPA of imported coal through Inland
Waterways. As such, it could not be said that JITF was remiss, at any
point of time, in obtaining environmental clearance.
34.16 The learned Arbitral Tribunal also correctly noted that, even
after the EAC had enhanced the quantity of imported coal which could
be transported from 1.5 MMTPA to 3 MMTPA by communication
dated 3 February 2017, NTPC nonetheless did not provide the MGQ
of imported coal to JITF for transportation, nor make any efforts to
obtain such quantity. No further tenders were entered into, and no
contracts with any ICSs were established for sourcing the MGQ of
coal. These factors, along with the annual statement of NTPC which
itself indicated that, during the year 2016-2017, NTPC had drastically
reduced its procurement of imported coal by substituting it with
domestic coal, thereby entailing a saving of over ₹ 8000/- crores,
correctly convinced the learned Arbitral Tribunal that NTPC had no
intention whatsoever to honour its obligation under Article 7.3 of the
TPA.
34.17 For these reasons, we are unable to sustain the findings of the
learned Single Judge with respect to the decision of the learned
Arbitral Tribunal apropos Claim 3 and 3A of JITF.
34.18 The discussion and findings of the learned Arbitral Tribunal, to
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our mind, are completely impervious to challenge within the limited
scope of Section 34 of the 1996 Act. They reflect not only a plausible,
but also a correct appreciation of the law and facts. We are unable to
appreciate the findings of the learned Single Judge that the decision of
the learned Arbitral Tribunal was liable to be interfered with.
35 We, therefore, sustain the arbitral award, insofar as it allows
Claims 3 and 3A of the JITF.
C.III Re. Claim 5A - NTPC's Consultation Notice, Termination
Notice and Requisition Notice are illegal, invalid, non-est and of no
effect whatsoever
36 Findings of the learned Arbitral Tribunal
36.1 The learned Arbitral Tribunal noted that, in Claim 5A, JITF was
challenging the validity of the consultation notice, the termination
notice and the requisition notice issued by NTPC and was claiming, as
a consequence of illegal termination, damages of ₹ 1108,93,05,000/-.
36.2 JITF’s contentions before the learned Arbitral Tribunal, in this
regard, were as under:
(i) Re. consultation notice
(a) The consultation notice dated 9 March 2017 was
issued by NTPC for matters which were sub judice and
pending adjudication before the learned Arbitral
Tribunal.
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(b) JITF replied to the consultation notice on 16 March
2017. NTPC, in its response dated 13 April 2017,
required JITF to provide confirmation with respect to
only two aspects, i.e. (i) the acceptance of the next Ocean
55
Going Vessel by JITF and (ii) extension of the CTA
beyond 31 January 2017. JITF had already accepted the
nomination of MV Vishwa Preeti as the next OGV on 6
April 2017. However, MV Vishwa Preeti was diverted
by the ICS and could not, therefore, be commissioned.
By its letters dated 12 April 2017 and 14 April 2017,
addressed to NTPC, JITF accepted the nomination of the
next OGV as well. Following this, on 15 April 2017,
MV Mary Gorgias was nominated by the ICS. The
vessel arrived on 18 May 2017. Prior thereto, on 14
April 2017, JITF had agreed to extension of the CTA as
well. This fact was once again intimated by JITF to
NTPC on 26 April 2017, in which communication it was
stated that JITF had given consent for extension of the
CTA and had also accepted nomination of the next OGV.
As a result, the aspects noted by NTPC in its
communication dated 13 April 2017 stood addressed. The
consultation notice thereby was effectively revoked and
withdrawn. NTPC did not dispute or rebut the contents
of this communication dated 26 April 2017 from JITF.
(c) The fact that the basis of the consultation notice
55
“OGC”, hereinafter
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issued by NTPC to JITF no longer survived was further
manifest from communication dated 3 May 2017 from
NTPC to IWAI, in which it was specifically stated that,
as the OGV had been nominated and accepted by JITF,
and 5.5 LMT coal was yet to be delivered, there was no
requirement for any further meeting between NTPC and
JITF. The letter specifically stated that NTPC was
looking forward to early resumption of operations by
JITF.
(d) As a result, the consultation notice initially issued
by NTPC to JITF and followed by communication dated
13 April 2017 stood worked out.
(ii) Re. termination notice
(a) Despite the satisfaction of the consultation notice
issued by it, NTPC proceeded to issue the termination
notice on 24 July 2017.
(b) The termination notice alleged events of default by
JITF in excess of the events of default stated in the
consultation notice.
(c) The termination notice was a mere facade, as, even
prior to its issuance, NTPC had written to IWAI on 17
May 2017 that it had stopped further procurement of
imported coal and was substituting imported coal with
domestic coal, which had resulted in considerable
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financial benefit to NTPC of over ₹ 8000 crores. This
indicated that NTPC had no intention to perform its
obligations under the TPA and that it had terminated the
TPA merely so as to escape its performance.
(d) The termination of the TPA was also a knee jerk
reaction to the order dated 15 July 2017 of the learned
Arbitral Tribunal on JITF’s Section 17 application, by
which the learned Arbitral Tribunal had directed NTPC to
pay, to JITF, the MGQ for the first operation period of ₹
158.50 Crores.
(e) The fact that NTPC had no intention of continuing
to obtain imported coal, thereby rendering it impossible
for JITF to transport any such coal, was further manifest
from the Annual Report of NTPC for the year 2016-2017,
which clearly stated that, during the year 2016-2017,
NTPC had imported 1.09 MMT of coal, thereby reducing
its coal import by 85%. The Chairman of NTPC also
wrote to IWAI on 17 May 2017, stating that NTPC had
stopped procuring imported coal and had substituted
imported coal with domestic coal.
(f) In these circumstances, it was contended that the
termination notice dated 24 July 2017 issued by the
NTPC was illegal.
(iii) Re. JITF’s obligations
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Apropos its own obligations, JITF pointed out that Article
4.1(a)(v) of the TPA required JITF to make all reasonable
efforts to deliver the coal unloaded from the OGV within
5 days of unloading. There was no mandate in the TPA
or in the CTA requiring delivery of the coal to be made
within 5 days, as alleged by NTPC. In the circumstances,
ICS had, in its email dated 26 September 2016, of which
a copy was also marked to NTPC, accepted 15 days as
reasonable time for transport of the coal by JITF.
(iv) Re. Unlawful termination
(a) JITF contended that, owing to the illegal
termination of the TPA by NTPC, JITF was left with no
coal to transport. There was no way in which it could,
therefore, recoup the expenses and investments incurred
by it in setting up all the facilities in terms of the TPA.
On the other hand, JITF was contractually bound to hand
over all the assets to NTPC for a token price of ₹ 1.
(b) In these circumstances, JITF was entitled to
damages from NTPC.
(c) JITF contended that the damages had to be decided
on the basis of Article 7.3 of the TPA, which represented
mutually agreed genuinely pre-estimated damages in case
of non-supply of coal. This Clause would also apply in
the event of illegal termination of the TPA by NTPC,
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resulting in default of the obligation to supply the MGQ
for the remaining period of the TPA, and inability of JITF
to comply with its contractual obligations. NTPC was,
therefore, liable to pay, to JITF, the MGQ for the balance
term of the TPA, which was worked at ₹
1108,93,05,000/-, in the alternative to specific
enforcement of the TPA.
36.3 After recording the above facts and contentions, the learned
Arbitral Tribunal observed that, on facts, it was apparent that the
termination of the TPA by NTPC was mala fide and not attributable to
any default on the part of JITF. NTPC had clearly no intent to
continue with the TPA or perform its obligation, under Article 7.3, to
provide the MGQ of coal as, at the relevant time, NTPC was relying
on domestic coal, which was cheaper than imported coal. That NTPC
had no intention of performing its obligations was further manifest by
the fact that, even after the termination notice dated 24 July 2017 was
stayed by the learned Arbitral Tribunal by order dated 20 December
2017, no step was taken by NTPC to transfer the coal to JITF through
the Inland Waterways. In these circumstances, the termination of the
TPA by NTPC had to be regarded as mala fide and bad in law.
36.4 Inasmuch as NTPC was unwilling to perform its obligations
under the TPA, there was a clear irretrievable breach of the TPA by
NTPC. This resulted in impossibility of performance of the TPA by
JITF.
36.5 As specific performance of the TPA could not be ensured or
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directed, JITF was entitled to recover damages for the loss suffered by
it as a consequence of the illegal termination of the TPA by NTPC.
36.6 The TPA itself contained a genuine pre-estimate of the loss
which would be suffered by NTPC in the event of illegal termination,
in the form of the guaranteed MGQ. Article 7.3 permitted for a
reduction of 32.5% from the MGQ while computing the damages
payable to JITF. The scheme of the project was that the operator
could recover the expenses and operational costs incurred by it, along
with a reasonable profit, through the amounts which were payable to it
for transportation of the MGQ of coal by NTPC for 7 years. The
MGQ had, therefore, to be treated as representing a genuine pre-
estimate of the loss and expense which would be suffered by the
56
operator/contractor, i.e., JITF, as envisaged by Section 74 of the
Contract Act.
36.7 JITF had constructed the CUMHS out of its own funds and had
also invested huge amounts in undertaking the project. It had,
therefore, a legitimate expectation that it would be able to operate the
system for 7 years so as to recover the costs of the investment and
56
74. Compensation for breach of contract where penalty stipulated for .— When a contract has been
broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract
contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or
not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the
contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty
stipulated for.
Explanation.— A stipulation for increased interest from the date of default may be a stipulation by way of
penalty.
Exception.— When any person enters into any bail-bond, recognisance or other instrument of the same nature,
or, under the provisions of any law, or under the orders of the Central Government or of any State
Government, gives any bond for the performance of any public duty or act in which the public are interested,
he shall be liable, upon breach of any condition of any such instrument, to pay the whole sum mentioned
therein.
Explanation .—A person who enters into a contract with Government does not necessarily thereby undertake
any public duty, or promise to do an act in which the public are interested.
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earn a reasonable profit. However, owing to the illegal termination of
the TPA by NTPC on 24 July 2017, JITF was left with no coal to
transport, even while being contractually bound to hand over the
assets to NTPC for a token payment of ₹ 1. In these circumstances,
Article 7.3 of the TPA was legitimately invocable as representing the
genuine pre-estimate of the damages to which JITF would be entitled.
36.8 That NTPC was in complete breach of its obligations under the
TPA was also manifest from the fact that, even after the termination of
the TPA was stayed by the learned Arbitral Tribunal, NTPC took no
step to provide coal to JITF for transportation. Instead, immediately
after the second year of the operation period of the TPA, NTPC, of its
own, chose not to utilise the project facility for providing the MGQ of
coal to JITF, in clear breach of its obligation under Article 7.3 of the
TPA. Thus, there was a conscious decision by NTPC not to utilise the
MGQ for the remaining period of the TPA.
36.9 In these circumstances, JITF had been reasonable in seeking
only the amount to which it was entitled had the TPA continued to
remain in effect for the full period of 7 years, as envisaged by Article
7.3 of the TPA, less the discount provided in the said clause.
36.10 Following this reasoning, therefore, the learned Arbitral
Tribunal awarded, to JITF, against Claim 5A, the amount claimed of ₹
1108,93,05,000/-.
37 Impugned judgment of the learned Single Judge
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37.1 The learned Single Judge notes, in the impugned judgment, that
admittedly there were no operations by JITF for five years after the
first two years of the operation period following the COD.
37.2 The learned Single Judge, thereafter, adverts to Sections 73 and
74 of the Contract Act. The learned Single Judge holds, quite
correctly, that Section 73 of the Contract Act envisaged damages only
on proof of actual loss suffered by the claimant and would not apply
to a case of pre-estimated or pre-fixed damages. Inasmuch as the
damages awarded by the learned Arbitral Tribunal were not based on
actual loss or damage suffered by JITF, Section 73 of the Contract Act
would not apply.
37.3 The learned Single Judge thereafter proceeds to advert to
Section 74 of the Contract Act. Section 74 of the Contract Act
envisages payment of pre-estimated or pre-fixed damages. The learned
Single Judge notes, in para 150 of the impugned judgment, that a
claimant to damages under Section 74 was not required to prove loss,
as Section 74 entitled the plaintiff seeking damages to reasonable
damages not in excess of the amount mentioned in the contract.
37.4 The learned Single Judge, thereafter, refers to the judgments of
57
the Supreme Court in Fateh Chand v. Balkishan Das , Maula Bux
58 59
v. Union of India , and ONGC v. Saw Pipes Ltd. . Having referred
to these decisions, the learned Single Judge proceeds in paras 155 to
157 of the impugned judgment, to reason thus:
57
AIR 1963 SC 1405
58
( 1969) 2 SCC 554
59
(2003) 5 SCC 705
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“155. The Court, at the outset, considers that the award of
damages by the learned Arbitrator for the five years of contract in
which, in fact, no activity has taken place, taking recourse to
Clause 7.3 is totally illegal and perverse. If the contract had been
terminated rightly or wrongly, Clause 7.3 ceases to exist. In that
case, the provisions in Article 14 of the TPA would come into play.
It is also an admitted fact that the respondent had not led any
evidence for ascertainment of the damages. Therefore, it is a case
where apparently, the learned Arbitral Tribunal has travelled much
beyond the contractual terms. The Court has no doubt in its mind
that the MGQ would remain in currency only during the actual
operation of the contract and it comes to an end with the
termination of the contract. The view taken by the learned Tribunal
by taking Clause 7.3 for the purpose of liquidated damages and that
too, "pre-estimated genuine amount of damages" is surely beyond
the terms of the contract and is perverse. The Court has no doubt in
mind that learned AT has wrongly invoked Clause 7.3 to assess
damages pursuant to termination. It is not the case that the contract
did not provide consequences of "Termination". In this regard,
reference can be made Article 14.1(c), which specifically provides
for "compensation" in the event of "termination due to NTPC
default". If the argument of respondent is accepted, it would lead to
conclusion that NTPC had no right to terminate the contract.
156. In regard to the termination of notice, there is a substance in
the argument of learned SG that there were "events of default"
which were "underlying in nature". Thus, there were certain defects
which were central, fundamental and went to the root of the matter,
and included capability of the operator to transport the coal.
157. The attention has been invited during the course of the
arguments by the learned SG to the various letters dated
09.03.2017, 13.04.2017, 03.05.2017 and 29.05.2017. It was
submitted that these letters/evidences were not taken into account
by the learned Arbitral Tribunal which makes the award
unsustainable. There is a substance in the argument of learned SG
that though, the single instance of default was rectified by the
respondent, the overall delay and default were never rectified,
which justified the action of NTPC in terminating the contract.
Learned AT has invoked Clause 7.3 even post termination of the
contract by NTPC, which is also hit by Clause 1.4 of the TPA.
Clause 1.4 of the TPA reads as under:
"1.4 Ambiguities within the Agreement
In case of ambiguities or discrepancies within this
Agreement, the following shall apply:
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(a) Between two Articles of this Agreement, the
provisions of specific Articles relevant to the issue under
consideration shall prevail over those in other Articles;
(b) Between the Articles and the Annexures, the Article
shall prevail, save and except as expressly provided in the
Articles or the Annexures;
(c) Between the dimension scaled from the drawing and
its specific written dimension, the latter shall prevail; and
(d) Between any value written in numerals and that in
words, the latter shall prevail.
(e) Between the provisions of this Agreement and any
other documents forming part of this agreement, the former
shall prevail."
37.5 Thus, the reasoning of the learned Single Judge as contained in
paras 155 to 157 of the impugned judgment is that
(i) award of damages for a period of five years of the
contract in which no activity took place, by recourse to Article
7.3 of the TPA was illegal and perverse,
(ii) once the TPA was terminated, whether legally or
illegally, Article 7.3 would cease to exist,
(iii) JITF did not lead any evidence on the basis of which
actual damages suffered by it could be ascertained,
(iv) the requirement of MGQ would apply only during the life
of the contract and came to an end on termination of the
contract,
(v) adoption of Article 7.3 for awarding liquidated damages,
treating the MGQ envisaged in the said clause as genuine pre-
estimated damages was in excess of the terms of the contract
and was ex facie perverse,
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(vi) the TPA, in fact, provided for the consequence of
termination in the form of Article 14.1(c) which, in fact, would
be the Article which would apply if it were to be presumed that
the termination of the TPA by NTPC was illegal,
(vii) acceptance of JITF’s argument would imply that NTPC
had no right to terminate the TPA,
(viii) in so far as the finding regarding illegality of the
termination itself was concerned, there was substance in the
contention of the learned SG that there were events of default
which were underlying in nature and that there were certain
defects which were central, fundamental and went to the root of
the matter, including the capability of JITF to transport coal,
(ix) the learned SG had also correctly pointed out that the
letters dated 9 March 2017, 13 April 2017, 3 May 2017 and 29
May 2017 had not been taken into account by the learned
Arbitral Tribunal, rendering the award unreasonable,
(x) as the overall default and delay had never been rectified
by JITF, the termination of the TPA by NTPC was valid, and
(xi) the invocation of Article 7.3 of the TPA even after its
termination by the learned Arbitral Tribunal was violative of
Article 1.4 of the TPA, as per which the appropriate clause
which would apply, even where the termination of the TPA by
NTPC to be regarded as illegal, be Article 14.1(c).
38 Analysis
38.1 In our considered opinion, the learned Single Judge has
fundamentally erred in conflating the aspects of compensation in the
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case of a valid termination of a contract with compensation following
illegal breach. If the termination of the contract is illegal, that by itself
constitutes a breach of the contract, as held by the Supreme Court in
60
Dwarka Das v. State of Madhya Pradesh and J.G. Engineers Pvt.
61
Ltd. v. Union of India .
38.2 The decisions on which the learned Single Judge places reliance
namely Fateh Chand, Maula Bux and ONGC , in fact, militate against
the findings in the impugned judgment. We may refer to these
decisions, briefly, as under.
38.3 Fateh Chand
38.3.1 The relevant paragraphs from the decision in Fateh Chand , as
relied upon by the learned Single Judge, may be reproduced thus:
“8. The claim made by the plaintiff to forfeit the amount of Rs
24,000 may be adjusted in the light of Section 74 of the Indian
Contract Act, which in its material part provides:
"When a contract has been broken, if a sum is named in the
contract as the amount to be paid in case of such breach, or
if the contract contains any other stipulation by way of
penalty, the party complaining of the breach is entitled,
whether or not actual damage or loss is proved to have been
caused thereby, to receive from the party who has broken
the contract reasonable compensation not exceeding the
amount so named or as the case may be, the penalty
stipulated for."
9. The section is clearly an attempt to eliminate the sometime
elaborate refinements made under the English common law in
distinguishing between stipulations providing for payment of
liquidated damages and stipulations in the nature of penalty . Under
the common law a genuine pre-estimate of damages by mutual
agreement is regarded as a stipulation naming liquidated damages
60
(1999) 3 SCC 500
61
(2011) 5 SCC 758
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and binding between the parties: a stipulation in a contract in
terrorem is a penalty and the Court refuses to enforce it, awarding
to the aggrieved party only reasonable compensation. The Indian
Legislature has sought to cut across the web of rules and
presumptions under the English common law, by enacting a
uniform principle applicable to all stipulations naming amounts to
be paid in case of breach, and stipulations by way of penalty.
10. Section 74 of the Indian Contract Act deals with the
measure of damages in two classes of cases (i) where the contract
names a sum to be paid in case of breach and (ii) where the
contract contains any other stipulation by way of penalty. We are
in the present case not concerned to decide whether a contract
containing a covenant of forfeiture of deposit for due performance
of a contract falls within the first class. The measure of damages in
the case of breach of a stipulation by way of penalty is by Section
74 reasonable compensation not exceeding the penalty stipulated
for. In assessing damages the Court has, subject to the limit of the
penalty stipulated, jurisdiction to award such compensation as it
deems reasonable having regard to all the circumstances of the
case. Jurisdiction of the Court to award compensation in case of
breach of contract is unqualified except as to the maximum
stipulated; but compensation has to be reasonable, and that imposes
upon the Court duty to award compensation according to settled
principles. The section undoubtedly says that the aggrieved party is
entitled to receive compensation from the party who has broken the
contract, whether or not actual damage or loss is proved to have
been caused by the breach. Thereby it merely dispenses with proof
of "actual loss or damage"; it does not justify the award of
compensation when in consequence of the breach no legal injury at
all has resulted, because compensation for breach of contract can
be awarded to make good loss or damage which naturally arose in
the usual course of things, or which the parties knew when they
made the contract, to be likely to result from the breach.
15. Section 74 declares the law as to liability upon breach of
contract where compensation is by agreement of the parties pre-
determined, or where there is a stipulation by way of penalty . But
the application of the enactment is not restricted to cases where the
aggrieved party claims relief as a plaintiff. The section does not
confer a special benefit upon any party; it merely declares the law
that notwithstanding any term in the contract predetermining
damages or providing for forfeiture of any property by way of
penalty, the court will award to the party aggrieved only reasonable
compensation not exceeding the amount named or penalty
stipulated. The jurisdiction of the court is not determined by the
accidental circumstance of the party in default being a plaintiff or a
defendant in a suit. Use of the expression "to receive from the party
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who has broken the contract" does not predicate that the
jurisdiction of the court to adjust amounts which have been paid by
the party in default cannot be exercised in dealing with the claim of
the party complaining of breach of contract. The court has to
adjudge in every case reasonable compensation to which the
plaintiff is entitled from the defendant on breach of the contract.
Such compensation has to be ascertained having regard to the
conditions existing on the date of the breach ."
(Emphasis supplied)
38.3.2 It is clear that Fateh Chand is an authority for the law which
emerges from Section 74 of the Contract Act, which permits award of
damages on pre-estimated/pre-fixed basis. The following principles
emerge from the afore-extracted passages from Fateh Chand :
(i) The fixation of genuinely pre-estimated damages by
mutual agreement is regarded as a stipulation naming
liquidated damages and is binding upon the parties to the
contract.
(ii) As against this, a stipulation for damages in terrorem is
in the nature of penalty and is, therefore, unenforceable in law.
(iii) Section 74, if it applies, does not require a party to prove
actual damage or breach.
(iv) Damages cannot be granted under Section 74 if no legal
injury has resulted as a consequence of the breach of contract
(v) Section 74 requires the party guilty of breach of contract
to make good the loss or damage to the opposite party, which
naturally arose in the usual course of things, or which the
parties knew, when they entered into the contract, as likely to
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result from the breach.
(vi) Section 74, therefore, declared the law as to the liability
upon breach of contract where compensation by agreement
was pre-determined, as against a stipulation by way of penalty.
(vii) The amount of compensation to be awarded under
Section 74 in the form of damages had, however, to be
determined by the Court with regard to the conditions
applicable on the date of breach.
38.4 Maula Bux
38.4.1 The impugned judgment relies on the following passage from
Maula Bux :
“ It is true that in every case of breach of contract the person
aggrieved by the breach is not required to prove actual loss or
damage suffered by him before he can claim a decree, and the
Court is competent to award reasonable compensation in case of
breach even if no actual damage is proved to have been suffered
in consequence of the breach of contract. But the expression
‘whether or not actual damage or loss is proved to have been
caused thereby’ is intended to cover different classes of contracts
which come before the courts. In case of breach of some contracts
it may be impossible for the court to assess compensation arising
from breach, while in other cases compensation can be calculated
in accordance with established rules. Where the court is unable to
assess the compensation, the sum named by the parties if it be
regarded as a genuine pre-estimate may be taken into
consideration as the measure of reasonable compensation, but not
if the sum named is in the nature of a penalty. Where loss in terms
of money can be determined, the party claiming compensation
must prove the loss suffered by him.”
38.4.2 In Maula Bux , the Supreme Court held that where the Court is
unable to assess compensation, the sum named by the parties, if
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regarded as genuinely pre-estimated damages, may be taken into
consideration as reasonable compensation.
38.5 ONGC
38.5.1 The passages from ONGC , cited by the learned Single Judge,
read thus:
64. It is apparent from the aforesaid reasoning recorded by the
Arbitral Tribunal that it failed to consider Sections 73 and 74 of the
Indian Contract Act and the ratio laid down in Fateh Chand
case wherein it is specifically held that jurisdiction of the court to
award compensation in case of breach of contract is unqualified
except as to the maximum stipulated; and compensation has to be
reasonable. Under Section 73, when a contract has been broken, the
party who suffers by such breach is entitled to receive
compensation for any loss caused to him which the parties knew
when they made the contract to be likely to result from the breach
of it. This section is to be read with Section 74, which deals with
penalty stipulated in the contract, inter alia (relevant for the present
case) provides that when a contract has been broken, if a sum is
named in the contract as the amount to be paid in case of such
breach, the party complaining of breach is entitled, whether or not
actual loss is proved to have been caused, thereby to receive from
the party who has broken the contract reasonable compensation not
exceeding the amount so named. Section 74 emphasizes that in
case of breach of contract, the party complaining of the breach is
entitled to receive reasonable compensation whether or not actual
loss is proved to have been caused by such breach. Therefore, the
emphasis is on reasonable compensation. If the compensation
named in the contract is by way of penalty, consideration would be
different and the party is only entitled to reasonable compensation
for the loss suffered. But if the compensation named in the contract
for such breach is genuine pre-estimate of loss which the parties
knew when they made the contract to be likely to result from the
breach of it, there is no question of proving such loss or such party
is not required to lead evidence to prove actual loss suffered by
him…
*
67. …In our view, in such a contract, it would be difficult to
prove exact loss or damage which the parties suffer because of the
breach thereof. In such a situation, if the parties have pre-estimated
such loss after clear understanding, it would be totally unjustified
to arrive at the conclusion that the party who has committed breach
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of the contract is not liable to pay compensation. It would be
against the specific provisions of Sections 73 and 74 of the Indian
Contract Act. There was nothing on record that compensation
contemplated by the parties was in any way unreasonable. It has
been specifically mentioned that it was an agreed genuine pre-
estimate of damages duly agreed by the parties. It was also
mentioned that the liquidated damages are not by way of penalty. It
was also provided in the contract that such damages are to be
recovered by the purchaser from the bills for payment of the cost of
material submitted by the contractor. No evidence is led by the
claimant to establish that the stipulated condition was by way of
penalty or the compensation contemplated was, in any way,
unreasonable. There was no reason for the Tribunal not to rely
upon the clear and unambiguous terms of agreement stipulating
pre-estimate damages because of delay in supply of goods. Further,
while extending the time for delivery of the goods, the respondent
was informed that it would be required to pay stipulated damages.
68. From the aforesaid discussions, it can be held that:
(1) Terms of the contract are required to be taken into
consideration before arriving at the conclusion whether the party
claiming damages is entitled to the same.
(2) If the terms are clear and unambiguous stipulating the
liquidated damages in case of the breach of the contract unless it is
held that such estimate of damages/compensation is unreasonable
or is by way of penalty, party who has committed the breach is
required to pay such compensation and that is what is provided in
Section 73 of the Contract Act.
(3) Section 74 is to be read along with Section 73 and,
therefore, in every case of breach of contract, the person aggrieved
by the breach is not required to prove actual loss or damage
suffered by him before he can claim a decree. The court is
competent to award reasonable compensation in case of breach
even if no actual damage is proved to have been suffered in
consequence of the breach of a contract.
(4) In some contracts, it would be impossible for the court to
assess the compensation arising from breach and if the
compensation contemplated is not by way of penalty or
unreasonable, the court can award the same if it is genuine pre-
estimate by the parties as the measure of reasonable compensation.
38.5.2 From ONGC , the following principles emerge:
(i) If the compensation is by way of penalty, a party would
be entitled only to reasonable compensation.
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(ii) However, if the compensation in the agreement is in the
form of a genuine pre-estimate of the loss suffered by the
party as a consequence of breach, which the parties knew as
likely to result from breach, there was no question of the party
suffering as a result of the breach being required to prove loss.
The party was not required, in such a case, to lead any
evidence of the actual loss suffered by it.
38.5.3 Applying these principles, the Supreme Court held, in ONGC ,
that no evidence had been led by the ONGC to show that the
compensation sought by Saw Pipes was unreasonable or by way of
penalty.
38.6 Once these principles are understood, several clear errors
emanate from the reasoning contained in paras 155 and 156 of the
impugned judgment.
38.7 The learned Single Judge has held that the termination of the
TPA by NTPC, whether it was legal or illegal , would result in Article
7.3 of the TPA ceasing to exist. This is a clearly unsustainable finding.
If the termination is illegal, it results in breach of contract by NPTC.
In the case of breach of contract, JITF becomes entitled to
compensation. Award of such compensation in terms of the genuine
pre-estimated damages envisaged by the contract was, therefore,
totally legal.
38.8 The learned Single Judge further observes that the liability of
NTPC to make available, to JITF, the MGQ of coal, in terms of
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Article 7.3 of the TPA, survived only during the currency of the TPA
and came to an end with the termination of the TPA. To the extent that
the liability of NPTC to make the MGQ of coal available to JITF
would exist only so long as the TPA remained in force, the
observation of the learned Single Judge is correct. However, that is not
the issue which arises for consideration. The learned Arbitral Tribunal
has treated the MGQ, which would have been payable, had the TPA
not been illegally terminated by NTPC and had the TPA subsisted in
force for seven years, as constituting a legitimate basis to assess the
reasonable compensation to which JITF would be entitled in terms of
Section 74 of the Contract Act, treating the MGQ payable in that event
as a genuine pre-estimate of damages. There is nothing illegal in this
decision of the learned Arbitral Tribunal.
38.9 The third and perhaps most significant error in the reasoning of
the learned Single Judge is in his reliance on Article 14.1(c) of the
TPA. The learned Single Judge holds that, even if the termination of
the TPA was illegal, the compensation to which JITF would be
entitled, would have to be reckoned on the basis of Article 14.1(c).
38.10 JITF has correctly pointed out that Article 14.1(c) can have no
application at all, as it applies only where there is termination of the
contract by NTPC’s default. There was no termination of the contract
by JITF in the present case on the ground of default by NTPC; ergo,
Article 14.1(c) would not apply.
38.11 In fact, there is no provision in the TPA providing for any
specified damages in the case of breach of contract by its wrongful
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termination by NTPC. In such a case, therefore, the Tribunal was
justified in working out the reasonable compensation to which JITF
would be entitled on the basis of the guaranteed MGQ, as envisaged
by Article 7.3 of the TPA, had NTPC not illegally terminated the
TPA, and had the TPA subsisted and continued to remain in force for
a period of seven years after the COD. The decision of the learned
Arbitral Tribunal to treat the guaranteed MGQ, as envisaged by
Article 7.3 of the TPA as a genuine pre-estimate of the damages to
which the JITF would be entitled is, therefore, entirely in sync with
Section 74 of the Contract Act.
38.12 The learned Single Judge further observes that acceptance of
JITF’s argument would mean that NTPC would have no right to
terminate the TPA. This, again, with respect, is a factually and legally
unsustainable finding. NTPC had every right to terminate the TPA in
the case of an event of default by JITF. The right of NTPC to
terminate the TPA would not, however, entitle NTPC to illegally
terminate the TPA. In the case of breach of contract by JITF, NTPC
had the right to terminate the TPA in terms of Article 14.1, in which
case the said clause would apply. We are, however, in the present case
concerned with illegal termination of the TPA by NTPC.
38.13 In so far as the finding of the learned Arbitral Tribunal to the
effect that the termination of the TPA by NTPC was illegal is
concerned, there is hardly any traversal in the impugned judgment of
the learned Single Judge thereto. All that is said, is contained in paras
156 of the impugned judgment which is already reproduced in para
31.4 supra . With respect, the observations in the said paragraphs are
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totally vague. There is no evidence of any incapability on the part of
the JITF to transport coal and fulfil its obligations under the TPA, as
has been observed in the said paragraphs of the impugned judgment.
The judgment does not, in any way, address the findings of the learned
Arbitral Tribunal on the basis of which it was held that the termination
of the TPA by NTPC was illegal.
38.14 The findings and reasoning of the learned Single Judge also
ignore the fact that the termination of the TPA by NTPC had been
stayed by the learned Arbitral Tribunal by order dated 20 December
2017. The stay order continued to remain in effect till the expiry of
seven years from the COD. Thus, there was effectively no operative
termination of the TPA till expiry of the contractual term. Despite this,
there was no further effort by NTPC to satisfy its obligations under the
TPA to provide the MGQ of coal to JITF for it to transport the coal to
the FTTP. The various communications, to which allusion has already
been made hereinbefore, on the other hand, make it absolutely clear
that NPTC had, in order to bolster its own finances and save what,
according to it, was in the region of ₹ 8,000 crores, taken an informed
decision to discontinue procurement of imported coal and instead used
domestic coal.
38.15 NTPC cannot, therefore, seek to contend that it had any
intention of continuing to perform its obligation of making the MGQ
of coal available to JITF for transportation. In that view of the matter,
there can obviously be no question of laying any default at the door of
JITF in failing to comply with its contractual obligations to transport
the coal. In such circumstances, Article 7.3, which specifically
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referred to the MGQ and the amount which had to be paid against
transportation of the MGQ, became directly applicable.
38.16 Before concluding our discussion on Claim 5A of JITF, it is
necessary to reiterate the limits of Section 34 of the 1996 Act, which
emanate from the decisions already cited earlier in this judgment.
Apart from the fact that reasoning of the learned Single Judge is, in
our respectful opinion, legally flawed, we are also constrained to
observe that the learned Single Judge has effectively re-adjudicated
Claim 5A and has sat in appeal over the decision of the learned
Arbitral Tribunal. Apart from everything else, we do not find that the
judgment of the learned Arbitral Tribunal, in so far as it adjudicated
Claim 5A in favour of JITF, suffered from any such patent illegality
as would justify interference within the scope of Section 34 of the
1996 Act.
38.17 Holistically viewed, in fact, the decision of the Tribunal is
eminently fair and just, and we are entirely unable to appreciate the
decision of the learned Single Judge to interfere therewith. Huge
amounts had been invested by JITF in the project, as required by the
TPA. Article 7.3 of the TPA required NTPC to guarantee, for
transport by JITF, the MGQ of coal for a total period of seven years.
This was the sole basis on which NTPC could recoup the amounts
invested by it in the project. Even for the first two years of the
operating period of seven years, there was considerable shortfall in
the supply of coal by NTPC, much below the contracted MGQ.
Thereafter, NTPC, apparently in order to minimize its financial outlay
and earn handsome profits, decided to discontinue use of imported
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coal and switched to domestic coal. The consequence of such a
decision on JITF, and on the TPA itself, was blissfully ignored. When
JITF, becoming aware of this, moved the learned Arbitral Tribunal,
and obtained an order directing NTPC to disgorge the MGQ for the
first year of the operating period to JITF, NTPC promptly decided to
terminate the contract. The result was cataclysmic to JITF, as it
resulted not only in JITF losing all rights to payment for the
remaining five years of the contract whereby it could recoup the
expenses incurred by it, but also made JITF liable to return the assets,
in which it had entirely invested, to NTPC for a token ₹ 1. In these
circumstances, JITF was entitled, by virtue of Section 74 of the
Contract Act, to be compensated. In working out the reasonable
compensation to which JITF would be entitled, the learned Tribunal
has relied on the MGQ – which was guaranteed – as per Article 7.3 of
the TPA, for the remaining five years of its life. This being an amount
pre-estimated in the TPA itself, and not being conditional on any
factor except the declaration of the COD by NTPC, no fault
whatsoever can be found with the decision of the learned Arbitral
Tribunal to treat it as a genuine pre-estimate of damages. There is,
therefore, no justification whatsoever to interfere with the decision of
the learned Arbitral Tribunal in this regard.
38.18 We, therefore, are constrained to hold that the decision of the
learned Single Judge to interfere with the findings and decision of the
learned Arbitral Tribunal with respect to claim 5A of JITF is not
sustainable in law. The findings of the learned Arbitral Tribunal are,
therefore, affirmed.
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C.IV Re. remaining Claims
39. The impugned judgment of the learned Single Judge has set
aside the entire arbitral award, without any discussion or finding
regarding the decision on the remaining claims of JITF. As such, the
impugned judgment, to the extent it has set aside the award qua the
claims other than Claims 1, 3, 3A and 5A is clearly unsustainable.
40. The arbitral award, qua the remaining claims, has, therefore, to
be upheld, and the decision of the learned Single Judge to the contrary
reversed, on this sole ground.
D. Conclusion
41. In view of the above discussion, we are unable to sustain the
impugned judgment of the learned Single Judge.
42. The impugned judgment of the learned Single Judge is,
therefore, set aside, and the arbitral award dated 27 January 2019
upheld in its entirety.
43. The appeal stands allowed accordingly, with no further orders
as to costs.
C. HARI SHANKAR, J.
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OM PRAKASH SHUKLA, J.
1. I had the privilege of diving through an erudite and thoughtful
draft judgment rendered by my esteemed brother C. Hari Shankar, J .
2. However, for the reasons that would follow, I find myself
unable to subscribe with the opinion expressed by my respected
brother regarding Claim No. 1, 3, 3A and 5A. Therefore, I am
constrained to pen down my dissenting view through this opinion.
3. The learned Single Judge in my opinion has addressed all the
issues before him appropriately and the impugned judgment does not
warrant this court’s interference under Section 37 of the Act.
4. Since, the dispute before us is primarily limited to Claim No. 1,
3, 3A and 5A, I would limit my dissent to findings pertaining to above
claims and would state in a brief manner why I disagree with the
findings of my esteemed brother.
5. Additionally, as the relevant facts, Impugned award, impugned
judgment and submissions made before us have been flawlessly
explained and stated in the opinion of my brother. I would avoid
burdening my opinion with the same to avoid unnecessary prolixity.
6. Starting from the dispute pertaining to Claim No.1, the learned
arbitral tribunal has awarded Rs.424,08,00,423 crore to JITF on the
ground that, since compensation of COD under Article 3.2(b) was not
available, JITF would be entitled to compensation under the Indian
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62
Contract Act, 1872 .
7. Briefly put, according to learned arbitral tribunal, Article 3.2(b)
provided for compensation for delay caused by NTPC through
extension of COD. However, the operation of the said clause could not
be invoked, as admittedly NTPC had terminated the TPA on
24.06.2017. In these circumstances, according to learned Arbitral
Tribunal, JITF could not be denied compensation for the delays on the
part of the NTPC, as it was not disputed that delays were attributable
to NTPC.
8. The learned Arbitral Tribunal had also agreed that the only form
of compensation to JITF was to extend COD. However, as the TPA
got terminated and the delay was attributable to NTPC, the learned
arbitral tribunal granted monetary compensation of 424,08,00,423
crore to JITF.
9. Hari Shankar, J has upheld the findings of the learned Arbitral
Tribunal and held that the learned single Judge erred in holding that
the learned Arbitral Tribunal had breached Article 3.2(b) of the TPA.
He observes that the arbitral tribunal has the power under Section 73
of ICA to award compensation, even in a case where compensation
was otherwise not payable under the contract.
10. Without commenting on, as to whether an arbitral tribunal
reserves the power under Section 73 of the ICA to award
compensation, even in a case where compensation was otherwise not
62
“ICA” hereinafter
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payable under the contract. I would like to express, for Claim No.1,
here the case was not that the compensation has not been stipulated or
provided anywhere at all in the contract or could not had been granted
under section 73 of the ICA, but the issue is the form of compensation
and the contractual character of the period for which the monetary
claim was calculated.
11. Article 3.2(b) of the TPA uses the expression “shall” and
“ compensate.” It does not merely regulate an extension procedure. It
identifies the very form of compensation agreed by the parties i.e.
“ shall compensate … by suitably extending COD. ”
12. The arbitral tribunal has itself recorded that in an ideal situation,
the compensation was in form of extending COD.
13. It is clear that compensation was expressly provided in the
contractual mechanism between the parties. However, in my opinion,
because the contractual remedy could not have been implemented, the
arbitral tribunal should not have replaced it with another remedy using
Section 73 of the ICA.
14. It is undisputed that an arbitral tribunal may interpret the
contract and apply remedies supplied by substantive law. However, it
cannot rewrite the commercial bargain agreed between the parties nor
it can create a substantive contractual entitlement which the parties
never agreed to. The Tribunal cannot penetrate in the virgin area for
which the parties exercised certain extent of autonomy.
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15. The law on this aspect is settled that an arbitral Tribunal is a
creature of the contract itself and it has no inherent power to grant an
equitable relief comparable to a civil court. The arbitral tribunal
cannot ignore an express contractual stipulation or grant relief because
such relief appears to be fair or equitable. At the cost of repetition, an
arbitral tribunal is a creature of contract itself and it must act in
accordance with it.
16. The Primary function of the arbitral Tribunal is to enforce the
promises which the parties themselves made and maintain the sanctity
of the contract and the arbitral tribunal has no power apart from what
the parties have conferred upon him.
17. The fact that the remedy chosen by the parties later becomes
practically unavailable does not necessarily authorise the arbitrator to
invent a different contractual consequence.
18. The Hon’ble Supreme Court in SEPCO Electric Power
63
Construction Corporation v. GMR Kamalanga Energy Ltd ., held as
follows on jurisdiction of the Arbitral Tribunal:
“91. Numerous precedents laid down by this Court have often
emphasised that an arbitrator lacks the power to deviate from or to
reinterpret the terms of the contract while making an award. The
awards must be within the parameters of the agreement entered
between the parties.
92. This Court in Saw Pipes (supra) has reiterated that any
deviation from the mandate of Section 28 Sub-Section 3 of the
1996 Act is a valid ground for lambasting an arbitral award.
Commenting on the duty of the arbitrators, this Court observed as
follows:
63
2025 INSC 1171
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“73. It is to be reiterated that it is the primary duty of the
arbitrators to enforce a promise which the parties have
made and to uphold the sanctity of the contract which forms
the basis of the civilized society and also the jurisdiction of
the arbitrators. Hence, this part of the award passed by the
Arbitral Tribunal granting interest on the amount deducted
by the appellant from the bills payable to the respondent is
against the terms of the contract and is, therefore, violative
of Section 28(3) of the Act.”
93. To substantiate that the contract is paramount to the working,
scope, and interpretation for the purpose of an award by the
arbitrator, a reference may be made to another 3-Judge Bench
decision in South East Asia Marine Engineering and
Constructions Limited v. Oil India Limited. Therein, while
rejecting the challenge to setting aside of the arbitral award, this
Court made the following observations:
“28. In this context, the interpretation of Clause 23 of the
contract by the Arbitral Tribunal, to provide a wide
interpretation cannot be accepted, as the thumb rule of
interpretation is that the document forming a written
contract should be read as a whole and so far as possible
as mutually explanatory. In the case at hand, this basic
rule was ignored by the Tribunal while interpreting the
clause.
29. The contract was entered into between the parties in
furtherance of a tender issued by the respondent herein.
After considering the tender bids, the appellant issued a
letter of intent. In furtherance of the letter of intent, the
contract (Contract No. CCO/FC/0040/95) was for drilling
oil wells and auxiliary operations. It is important to note
that the contract price was payable to the “contractor” for
full and proper performance of its contractual obligations.
Further, Clauses 14.7 and 14.11 of the contract state that
the rates, terms and conditions were to be in force until the
completion or abandonment of the last well being drilled.
30. From the aforesaid discussion, it can be said that the
contract was based on a fixed rate. The party, before
entering the tender process, entered the contract after
mitigating the risk of such an increase. If the purpose of
the tender was to limit the risks of price variations, then
the interpretation placed by the Arbitral Tribunal cannot
be said to be possible one, as it would completely defeat
the explicit wordings and purpose of the contract. There is
no gainsaying that there will be price fluctuations which a
prudent contractor would have taken into margin, while
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bidding in the tender. Such price fluctuations cannot be
brought under Clause 23 unless specific language points to
the inclusion.
31. The interpretation of the Arbitral Tribunal to expand
the meaning of Clause 23 to include change in rate of
HSD is not a possible interpretation of this contract, as the
appellant did not introduce any evidence which proves the
same.”
94. Further clarification of this proposition is brought about
through observations of this Court in a further decision by 3-Judge
Bench in Union of India and Others v. Bharat Enterprise61 wherein
it was underlined that the existence and powers of an arbitrator are
a creature of the agreement between the parties, and it is the terms
of the contract which serves as a fundamental basis for the
procedure to be adopted by the arbitral tribunal. Therefore, the
concerned arbitrator is restricted to the terms of the contract thereof
and cannot go outside its scope or what is, per se, specified. In
words of the Bench, “ A disregard of the specific provisions of the
contract would incur wrath of the Award being imperilled. This
position cannot be in the region of dispute .”
95. In order to achieve an enhanced understanding apropos the
scope of the powers and jurisdiction of an arbitrator, a reference
may also be made to a decision of this Court in Associated
Engineering (supra), which was determined vis-à-vis Section 30 of
the Arbitration Act, 1940 wherein, it was observed that:
“24. The arbitrator cannot act arbitrarily, irrationally,
capriciously or independently of the contract. His sole
function is to arbitrate in terms of the contract. He has no
power apart from what the parties have given him under
the contract. If he has travelled outside the bounds of the
contract, he has acted without jurisdiction. But if he has
remained inside the parameters of the contract and has
construed the provisions of the contract, his award cannot
be interfered with unless he has given reasons for the
award disclosing an error apparent on the face of it.
25. An arbitrator who acts in manifest disregard of the
contract acts without jurisdiction. His authority is derived
from the contract and is governed by the Arbitration Act
which embodies principles derived from a specialised
branch of the law of agency (see Mustill and Boyd's
Commercial Arbitration, 2nd edn., p. 641). He commits
misconduct if by his award he decides matters excluded by
the agreement (see Halsbury's Laws of England, Volume
II, 4th edn., para 622). A deliberate departure from
contract amounts to not only manifest disregard of his
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authority or a misconduct on his part, but it may
tantamount to a mala fide action. A conscious disregard of
the law or the provisions of the contract from which he has
derived his authority vitiates the award.
26. A dispute as to the jurisdiction of the arbitrator is not a
dispute within the award, but one which has to be decided
outside the award. An umpire or arbitrator cannot widen
his jurisdiction by deciding a question not referred to him
by the parties or by deciding a question otherwise than in
accordance with the contract. He cannot say that he does
not care what the contract says. He is bound by it. It must
bear his decision. He cannot travel outside its bounds. If
he exceeded his jurisdiction by so doing, his award would
be explain liable to be set aside. As stated by Lord
64
Parmoor :[ Attorney-General for Manitoba v. Kelly :
“It would be impossible to allow an umpire to
arrogate to himself jurisdiction over a question
which, on the true construction of the submission,
was not referred to him. An umpire cannot widen the
area of his jurisdiction by holding, contrary to the
fact, that the matter which he affects to decide is
within the submission of the parties.”
Evidence of matters not appearing on the face of the award
would be admissible to decide whether the arbitrator
travelled outside the bounds of the contract and thus
exceeded his jurisdiction. In order to see what the
jurisdiction of the arbitrator is, it is open to the court to see
what dispute was submitted to him. If that is not clear from
the award, it is open to the court to have recourse to outside
sources. The court can look at the affidavits and pleadings
of parties; the court can look at the agreement itself. Bunge
65
& Co. v. Dewar and Webb .
27. If the arbitrator commits an error in the construction of the
contract, that is an error within his jurisdiction. But if he wanders
outside the contract and deals with matters not allotted to him, he
commits a jurisdictional error. Such error going to his jurisdiction
can be established by looking into material outside the award.
Extrinsic evidence is admissible in such cases because the dispute
is not something which arises under or in relation to the contract or
dependent on the construction of the contract or to be determined
within the award. The dispute as to jurisdiction is a matter which is
outside the award or outside whatever may be said about it in the
award”.
64
(1922) 1 AC 268, 276
65
(1921) 8 Ll L Rep 436
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19. In PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees of
66
V.O.C. Port Trust , The Hon’ble Supreme court held that an arbitral
tribunal is not a court of law and cannot exercise powers ex debito
justitiae unless the parties have agreed to bestow such power to the
Tribunal . Its jurisdiction is confined to the four corners of the
agreement and it can pass only such orders as fall within the subject
matter of the reference. The relevant paras capturing the above
findings are reproduced below:
84. After referring to various international treaties on
arbitration and judgments of other jurisdictions, this Court in
Ssangyong Engineering and Construction Company Limited
(supra), observed thus:
“76. However, when it comes to the public policy of India,
argument based upon “most basic notions of justice”, it is
clear that this ground can be attracted only in very
exceptional circumstances when the conscience of the Court
is shocked by infraction of fundamental notions or
principles of justice. It can be seen that the formula that was
applied by the agreement continued to be applied till
February 2013 — in short, it is not correct to say that the
formula under the agreement could not be applied in view
of the Ministry's change in the base indices from 1993-1994
to 2004-2005. Further, in order to apply a linking factor, a
Circular, unilaterally issued by one party, cannot possibly
bind the other party to the agreement without that other
party's consent. Indeed, the Circular itself expressly
stipulates that it cannot apply unless the contractors furnish
an undertaking/affidavit that the price adjustment under the
Circular is acceptable to them. We have seen how the
appellant gave such undertaking only conditionally and
without prejudice to its argument that the Circular does not
and cannot apply. This being the case, it is clear that the
majority award has created a new contract for the parties by
applying the said unilateral Circular and by substituting a
workable formula 76 under the agreement by another
formula dehors the agreement. This being the case, a
fundamental principle of justice has been breached, namely,
that a unilateral addition or alteration of a contract can
66
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never be foisted upon an unwilling party, nor can a party to
the agreement be liable to perform a bargain not entered
into with the other party. Clearly, such a course of conduct
would be contrary to fundamental principles of justice as
followed in this country, and shocks the conscience of this
Court. However, we repeat that this ground is available only
in very exceptional circumstances, such as the fact situation
in the present case. Under no circumstance can any court
interfere with an arbitral award on the ground that justice
has not been done in the opinion of the Court. That would
be an entry into the merits of the dispute which, as we have
seen, is contrary to the ethos of Section 34 of the 1996 Act,
as has been noted earlier in this judgment.”
[emphasis supplied]
85. As such, as held by this Court in Ssangyong Engineering
and Construction Company Limited (supra), the fundamental
principle of justice has been breached, namely, that a unilateral
addition or alteration of a contract has been foisted upon an
unwilling party. This Court has further held that a party to the
Agreement cannot be made liable to perform something for
which it has not entered into a contract. In our view, rewriting
a contract for the parties would be breach of fundamental
principles of justice entitling a Court to interfere since such
case would be one which shocks the conscience of the Court
and as such, would fall in the exceptional category .
86. We may gainfully refer to the following observations of
this Court in Bharat Coking Coal Ltd. v. Annapurna
67
Construction .
“22. There lies a clear distinction between an error within
the jurisdiction and error in excess of jurisdiction. Thus, the
role of the arbitrator is to arbitrate within the terms of the
contract. He has no power apart from what the parties
have given him under the contract. If he has travelled
beyond the contract, he would be acting without
jurisdiction, whereas if he has remained inside the
parameters of the contract, his award cannot be
questioned on the ground that it contains an error
apparent on the face of the record.”
87. It has been held that the role of the Arbitrator is to
arbitrate within the terms of the contract. He has no power
apart from what the parties have given him under the contract.
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If he has travelled beyond the contract, he would be acting
without jurisdiction .
88. It will also be apposite to refer to the following
observations of this Court in the case of Army Welfare Housing
68
Organization v. Sumangal Services (P) Ltd .
“43. An Arbitral Tribunal is not a court of law. Its orders
are not judicial orders. Its functions are not judicial
functions. It cannot exercise its power ex debitojustitiae.
The jurisdiction of the arbitrator being confined to the
four corners of the agreement, he can only pass such an
order which may be the subject matter of reference .”
89. It has been held that an Arbitral Tribunal is not a Court
of law. Its orders are not judicial orders. Its functions are not
judicial functions. It cannot exercise its powers ex debito
justitiae. It has been held that the jurisdiction of the arbitrator
being confined to the four corners of the agreement, he can
only pass such an order which may be the subject matter of
reference.
20. Thus, it is clear that where an award imposes a unilateral
addition, alteration, or obligation not contemplated by the agreement,
the tribunal acts beyond its jurisdiction. Such rewriting of the contract
amounts to a breach of fundamental principles of justice and may
justify interference.
21. Having understood the jurisdiction of the arbitral tribunals, even
if it was impossible to operate Article 3.2 (b), the learned arbitral
tribunal erred in granting monetary compensation to JITF.
22. To my mind, the language and the expressions of the Article
3.2(b), is clear that this clause defines not merely an entitlement to
additional time but the manner in which NTPC must “compensate”
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JITF.
23. According to me, the clause is crystal clear about what the
parties had already agreed as to what would happen if NTPC caused
delay.
24. Therefore, I with utmost respect, disagree with the finding of
my learned brother that learned arbitral tribunal in this matter could
award monetary compensation which was otherwise not payable under
the contract.
25. The expression “ shall compensate … by suitably extending
COD. ” used in Article 3.2(b) cannot be read to defeat it’s plain
meaning i.e., to keep the compensation non-monetary in nature.
26. Having once agreed that the compensation shall not be payable
in monetary terms, the learned arbitral tribunal could not have
awarded compensation by terms which were never agreed between the
parties.
27. According to me the problem in awarding such an amount is
twofold. The first being that the contractual character of the period for
which the monetary claim was calculated. Article 7.1(a)(i), of the
contract required NTPC to provide 2 MMTPA of coal during the
“Material Handling System-Phase-I Period”.
28. Article 2.2(c)(i) describes Phase-I as a defined construction and
operating stage, with the Phase-I system intended to be in operation
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for approximately nine months and thereafter utilised in the coal
hauling plan following completion of Phase-II.
29. The contract therefore does not state that the 2 MMTPA
obligation commences on a hypothetical date calculated
retrospectively by assuming an alternative construction history. It
links the obligation to the contractual Phase-I period. According to
me, this distinction matters because Article 3.2(b) separately provides
the agreed consequence of specified delay attributable to NTPC in the
nature of a suitable extension of COD and commencement of
transportation through Phase-I, without penalty. Unfortunately,
although the tribunal itself recognised this provision, but went on to
conclude that because termination had subsequently occurred, the
contractual extension mechanism was no longer available and it could
therefore resort to general damages under the provisions of Contract
Act.
30. In my view, that conclusion impermissibly shifts the contractual
starting point. The impossibility of granting the contractual remedy at
a later stage cannot enlarge the substantive monetary obligation that
existed during an earlier, contractually defined period. An agreed
extension-of-COD mechanism does not become a monetary
entitlement merely because subsequent events render extension
impracticable. According to me, the tribunal had incorrectly identified
the breach and the contractual period to which it related and
apparently it seems the claim was calculated on a hypothetical
commencement date rather than on the actual contractual Phase-I
Period.
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31. The, second problem, is that even if it has to be accepted that
compensation could be granted using Section 73 of the ICA, the
learned arbitral tribunal does not get a free hand in awarding amount
of compensation what it considers fair. In my opinion, compensation
awarded was not apparently compensation for specifically proved
additional expenditure actually incurred. Instead, it was calculated on
coal that was never actually handled, and according to me, using a
project rate methodology that included costs of operating activities
which never took place.
32. In this regard, I agree with the submissions made by learned
Solicitor general that damages were granted to JITF not only without
adjudication, but also without considering that the "project rate" at
which damages were computed as per the JITF's chart, comprised of
operational cost and running expenses.
33. Undoubtedly, operational costs such as fuel prices for running
the entire system, running barges, running transhippers, cranes,
expenses with respect to employees, etc were also included and
awarded by the learned arbitral tribunal.
34. According to me, if the JITF's case was that there was no
movement of coal, such operational cost and running expenses could
not have been added in the total damages.
35. The learned Solicitor General is correct in submitting that there
can be no question of claiming hypothetical loss of profit while also
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including operational costs that were never incurred.
36. Clearly, even assuming arguendo that Section 73 was capable
of operating notwithstanding the contractual mechanism of extension
of time, the learned Arbitral Tribunal could not mechanically monetise
the unavailable extension without ascertaining loss.
37. It was independently required to identify the breach giving rise
to damages and establish a nexus between that breach and the alleged
pecuniary loss and determine the quantum on the basis of evidence.
38. Section 73 compensates proved loss caused by breach.
However, in the present case, the table submitted by JITF has been
admitted as it is and there is no independent examination conducted by
the learned arbitral tribunal.
39. Thus, according to me, the findings of learned single judge, on
claim No.1, deserve no interference as the Learned Single Judge was
justified in concluding that Claim No. 1 suffered from patent illegality
in its legal foundation. The error was not the selection of one
arithmetic formula over another but it was the substitution of a
hypothetical period for the contractual period and the consequent
creation of a liability which the contract, read as a whole, did not
impose in that form.
40. The next issue which arises for my consideration is pertaining
to Claim Nos.3 and 3A.
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41. As per this claim, NTPC was required to make a minimum
quantity of coal available to JITF. For the first operational year, the
contractual benchmark was effectively 90% of 3 MMT per annum.
But only about 0.746 MMT was made available to JITF during the
first operational year.
42. On that basis, JITF claimed the MGQ shortfall amount.
43. The learned Single Judge noted that entire award proceeded on
the basis that obtaining environmental clearance was NTPC's
responsibility and that the reduction of permissible coal quantity from
3 MMT to 1.5 MMT did not reduce NTPC's MGQ liability.
44. However, in para 140 to 142, the learned single judge records
the following:-
“140. It is pertinent to mention that learned AT irrespective of the
directions of MoEF has calculated the shortfall, taking into account
3 MMT. It is quite surprising how the NTPC could have violated
the directions given by authority and opened itself to various kinds
of prosecutions and adverse consequences. The perseverance of the
environment is the duty of one and all and violation of the same
cannot be allowed to be carried out at any cost. It becomes the
statutory obligation of everybody to comply with the directions
relating to the environment. Thus, the finding of the learned
Arbitral Tribunal in calculating the MGQ taking into account 3
MGQ on the face of it, is perverse. In regard to the responsibility of
getting the EC, the learned AT has proceeded on the premises that
NTPC being the project proponent, was required to take the EC.
However, in this regard, it is necessary to refer to the following
provisions of the TPA:-
“Article 3.1C (ii) puts an obligation on the operator to
procure all applicable permits/licenses/clearances,
unconditionally, or if subject to conditions, then all such
conditions must have been satisfied in full and such
applicable permits/licenses/clearances are kept in full force
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and effect during the construction and operation of the
project.”
It is also necessary to refer to clause 7.1C (vii) which puts an
obligation on the operator to comply with all applicable laws and
obtain all applicable permits in all material respects.
141. It is also pertinent to mention here as borne out from the
record that NTPC, vide letter dated 25.02.2014, invited the
attention of the respondent to the condition precedent of the
operator which is in response to the letter of the respondent dated
20.02.2014, whereby, are quest was made for reimbursement of fee
against studies awarded by JITF on CIFRI for environmental
clearance of Farakka IWT Project. NTPC, inviting the attention on
the provisions of TPA and clause 3.1C of the TPA reiterated that
all the clearances required for the project are to be taken by the
operator. It is also pertinent to mention here the letter dated
30.04.2014, which was also related to the operational delays on the
part of the respondent. The perusal of the record indicates that
consent to operate the project dated 16.09.2016 was taken by the
respondent and the responsibility of NTPC was limited to
facilitating the clearance. The Court considers that after reduction
by MoEF in the First Year Operation Period from 3 MMTPA to
1.5 MMTPA, has to be taken into account. It is a basic principle
that what is prohibited by law cannot be directed to be enforced in
any manner.
142. The learned AT has also allowed the claim of the JITF
towards reimbursement of Rs.42,93,914/- on account of the fee
paid to CIFRI on the ground that NTPC is required to obtain prior
EC for the use of blended coal and for transportation of coal from
Sand heads to Farakka TPP through NW-1. It was also noted that
on account of the delay on the part of NTPC to undertake the
study, JITF engaged CIFRI on behalf of NTPC, in the interest of
the Project for conducting the required study and informed NTPC
vide its letter dated 20.02.2014 that the subject study report had
been issued to CIFRI on behalf of NTPC to avoid delay. Learned
AT rejected the contention of NTPC that in an internal meeting of
NTPC, IWAI and JITF, it was decided that JITF would conduct the
study and also did not agree to discharge NTPC of its obligations
as IWAI had agreed to pay JITF the cost of CIFRI. The discussion
made hereinabove makes it clear that it was not the responsibility
of the petitioner to take EC clearance. It has to be understood that
initial EC was taken by NTPC for main Project. However,
subsequently, TPA was executed for the project, and the terms of
the TPA specifically provides it to be the responsibility of JITF.
Therefore, on the face of it, the NTPC cannot be held liable for
this.”
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45. I agree with the findings of the learned Single Judge for the
reasons that shall follow.
46. Before expressing my difference, I feel it would be appropriate
to reproduce Article 3.1(c) and Article 7.1 (c) (vii) of the TPA.
3.1 (c) Conditions Precedent of Operator
The Conditions Precedent required to be satisfied by the Operator
shall be deemed to have been(filled when the Operator shall have:
(i) Furnished the Performance Guarantee as stipulated in
Article 4;
(ii) procured all the Applicable Permits/ Licenses/ Clearances
unconditionally or if subject to conditions then all such conditions
shall have been satisfied in full and such Applicable Permits/
Licenses/ Clearances are kept in full force and effect during the
construction and operation of the Project;
(iii) The Operator shall, within 45 (Forty five) clays of the
Compliance Date, prepare and submit the Construction Documents
to NTPC and IWAI.
(iv) make all applications at its cost and procure the clearances, and
all other necessary Applicable Permits that are required for
commencing of the Project.
Provided that upon request in writing by the Operator, IWAI/
NTPC may, in its discretion, waive, after recording the reasons
thereof, any of the Conditions Precedent set forth in this Article.
7.1 (c) Obligation of Operator
a. Fulfill entire Project Requirements and Scope of Work as
stipulated in Article 2.2.
b. ensure coal transportation through IWT for target quantity
to NTPC power site in lime from midstream unloading point to
coal stack yard of Power Plant;
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c. (iii)Transfer the Unloading Infrastructure and Material
Handling System at Re 1/-(Lumpsum Transfer price) to NTPC
after expiry of this agreement due to efflux of time or as per clause
14.1 (c) due to early termination of this agreement as the case may
be.
d. Operate and maintain Unloading infrastructure & Material
Handling System for the Term of this Agreement;
e. bear and pay all wharfage, anchorage and any other charges
levied by KoPT for Trans-shipment Mechanism at the Transfer
Point; KoPT has approved a concessional wharfage charge on coal
of Rs. 15 PMT plus service tax and. Nil anchorage charge on
mother vessel/ trans loader/ daughter vessel/barges for this project
for 3 MMTPA of coal for a period of 7 years.
With regard to operation of Transhipment Infrastructure in the area
West of Sand heads in the vicinity of Lat. 21°00' to 21º 33' and
Long. 87° 10' notified by KoPT as waters under their limits of port,
it may be noted that in case the operator has to pay charges in
excess of the concessional charges (as detailed in letter attached as
Annexure-V of the Addendum issued on 18th Feb 2011) to State
Government, Government agencies or any other Port Trust, such
additional charges shall be reimbursed to the Operator.
(vi)bear and pay all cost, taxes, expenses and charges in connection
with or incidental to the performance of the obligations under this
Agreement;
(vii)comply with all applicable laws and obtain all applicable
permits in all material respects. The Operator shall follow all the
applicable rules, regulation, and lor any notification/order of KoPT
in relation to operation of transhipper and plying of barges in KoPT
waters including but not limited to barges need 10 have specified
speed, comprehensive insurance for wreck removal and third party
liability, onboard VHF sets and all vessels should have plying
certificate from appropriate authority as per their respective plying
area.
(viii) Develop Standard Operating Procedures (SOP) for operation
and maintenance of Project Assets in discussion with NTPC;
(ix) take adequate preventive measures to comply with safety and
security standards of NTPC as well as local Statutory Authority at
own cost and expense.
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47. As per Articles 3.1(c) read with Article 7.1(c)(vii) of the TPA,
all permits and clearances related to the Project were the responsibility
of the JITF and, if Permits/Licenses/Clearances were granted subject
to conditions, all such conditions were to be satisfied in full.
48. The impugned award, incorporates no discussion on Article
3.1(c) which according to me, was a vital contractual clause.
49. Thus, it is clear from the TPA reached between the parties and
upon reading of the Impugned Award, that the Learned Arbitral
tribunal ignored the vital contractual clause, namely, Article 3.1C(ii)
which required the Operator, i.e. JITF, to procure all applicable
permits/licences/clearances and maintain them during construction
and operation.
50. Clause 7.1C(vii), was also not taken into account, which
imposed upon the JITF, the obligation to comply with applicable laws
and obtain applicable permits.
51. Upon perusing of the impugned award, the learned arbitral
tribunal fails to take into account, the contractual clauses which placed
responsibility on JITF to procure all sorts of environmental clearance.
52. In these circumstances, even if NTPC's status might have been
as project proponent under environmental law, the contractual
allocation between NTPC and JITF specifically placed relevant
clearance obligations on JITF.
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53. The learned Solicitor General has pointed out letters dated
25.02.2014 and 30.04.2014 which reminded the JITF that it was
responsible for obtaining the clearance for Coal Transportation
through Inland Waterways as the same was a Condition Precedent of
the Appellant as per Article-3 of TPA. These letters were clearly not
taken into account by the learned Arbitral Tribunal.
54. The principle that an arbitral tribunal cannot rewrite a contract
equally means that a tribunal cannot disregard a material contractual
provision while giving effect to another. A reading of Article 7.3
divorced from Articles 3.1(c)(ii), 7.1(c)(vii), the regulatory framework
and the actual conditions of lawful performance is not, in my
respectful view, a complete contractual construction.
55. On the above basis, the finding of learned single judge on claim
3 are upheld.
56. With respect to claim 5A, Hari Shankar, J has held that since
termination was illegal, it resulted in breach of contract by NTPC and
JITF was entitled to compensation in terms of genuine pre-estimated
damages.
57. Hari Shankar, J observes that “ if the compensation in the
agreement is in the form of a genuine pre-estimate of the loss suffered
by the party as a consequence of breach, which the parties knew as
likely to result from breach, there was no question of the party
suffering as a result of the breach being required to prove loss ”.
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58. While, I agree with the proposition laid by my brother.
However, in the present dispute, the compensation with respect to
wrongful termination is not in form of genuine pre-estimate of the loss
suffered. Instead, in my opinion, the TPA offers compensation post
termination through Article 14.1 (c).
59. Hari Shankar, J has reasoned that Article 14.1 (c) can only be
applied when there is termination of contract specifically by JITF on
the ground of NTPC.
60. I respectfully disagree with the interpretation adopted by my
learned brother as Article 14.1(c) expressly prescribes the
compensation upon termination due to NTPC default.
61. Therefore, even assuming arguendo NTPC's termination was
wrongful, the learned Arbitral Tribunal could not convert five future
years of MGQ into ₹1,108.93 crore of termination damages while
ignoring the specific termination-compensation mechanism chosen by
the parties. According to me, the award of this claim, presents the
clearest instance in which arbitral Tribunal crossed from interpretation
into rewriting the contract, by treating the claim as a genuine pre-
estimate of damages rather than compensation arising out of
termination.
62. The reason is no brainer i.e. where the contract specifically
states the consequence of a breach, an arbitrator cannot ordinarily
replace that consequence with a different remedy simply because it
considers the latter more appropriate.
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63. Clause 1.4(a) of the TPA, clearly stipulates that where there is
ambiguity or discrepancy between Articles, the specific Article
relevant to the issue under consideration shall prevail.
64. Therefore, I concur with the finding of the learned Single Judge
that termination compensation issue was specifically covered by
Article 14.1(c) and Article 14.1(c) must prevail over Article 7.3.
65. In this regard, Article 1.4 and 14.1 is reproduced here:-
1.4 Ambiguities within the Agreement
In case of ambiguities or discrepancies within this Agreement, the
following shall apply:
(a) Between two Articles of this Agreement, the provisions
of specific Articles relevant to the issue under consideration
shall prevail over those in other Articles ;
(b) Between the Articles and the Annexures, the Article shall
prevail, save and except as expressly provided in the Articles or the
Annexures;
(c) Between the dimension scaled form the drawing its specific
written dimension, the latter shall prevail; and
(d) Between any value written in numerals and that in words,
the latter shall prevail.
(e) Between the provisions of this Agreement and any other
documents forming part of this agreement, the former shall apply.
Article 14
14.1 Compensation
(a) Termination due to Force Majeure Event
(i) No payment shall be paid by any party in
case operation stops due to Force majeure.
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(ii) The period of operation shall be increased
by the same duration for which event. of force
Majeure exists.
(b) Termination due to Operator Event of Default
If the termination is due to Operator Event of
Default, NTPC shall forfeit the Performance
security submitted by Operator.
(c) Termination due to NTPC Default
In the event this Agreement is terminated due to
NTPC Event of Default then NTPC shall
buyback the Unloading Infrastructure and
Material Handling System at (1) Debt Due plus
(2) 1.00% (one hundred percent) Equity.
Provided, however, for the purposes of this
Agreement Debt Due and Equity shall not exceed
the value as determined on a normative capital
cost of [Rs. 90 crores] that is financed on Debt to
Equity ratio of 70:30 and assuming that the
repayment over 7 (seven) years period after
COD ,
(d) Termination due to IWAI Default
No payment shall be paid to any parties to this
contract in case project terminated due to IWAI
Event of Default.
66. The expression and language of Article 14.1 (c) and Article 1
makes it clear that it is an independent clause and is triggered where
there is termination on default of NTPC. There is no expression or
word even prima facie indicating that Article 14.1(c) gets triggered
only on specific termination by JITF on the ground of Default of
NTPC.
67. To read this clause otherwise i.e. it only gets triggered where
there is termination by JITF specifically on ground of default of
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NTPC, would defeat the commercial bargain reached between the
parties and would lead to rewriting of the contract.
68. Further, there is another aspect to this issue, in as much as
Section 74 of the ICA does not in any manner permit every sum
appearing anywhere in the TPA to be treated as a pre-estimated
damages clause. The first inquiry remains as to what did the parties
stipulate the amount to represent. As a matter of fact, it is a settled
law, that compensation must be reasonable and connected to the legal
injury resulting from the breach.
69. In the present case in hand, the tribunal did not identify words
in Article 7.3 by which the parties agreed that the annual MGQ
payment would constitute damages upon premature termination.
Instead, the tribunal inferred the proposition from the commercial
object of the project and JITF’s investment expectations.
70. No doubt, commercial background may illuminate ambiguous
words. However, in no circumstances can it create an omitted
contractual remedy. To use the expected seven year investment
recovery as the reason to convert an operating tariff formula into
damages is, in substance, to supply a term which the parties never
intended nor did they express.
71. Nor can the absence of a requirement to prove actual loss under
a genuine Section 74 clause eliminate the need to establish that the
stipulated amount is in fact the contractual measure of compensation
for the breach in question.
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72. According to me, the award for the remaining five years is
particularly problematic. The learned Single Judge recorded that there
were no operations by JITF during those five years. The tribunal
nonetheless awarded the full amount computed by the Article 7.3
formula for that period. Thus, the result effectively grants JITF the
contractual revenue stream for a period during which it did not
perform the corresponding transportation services. That may in some
circumstances be a legitimate measure of expectation damages. But
before reaching that result the tribunal had to identify the legal source
of the measure and undertake the discipline required by Sections 73
and 74. Instead, it moved directly from the existence of the MGQ to
the amount of damages.
73. The fact that JITF had invested in the project and had to hand
over assets for a token consideration explains the seriousness of the
commercial consequences. It does not by itself establish that the entire
hypothetical five-year operating revenue constituted reasonable
compensation.
74. Hence, for the above reasons, I am unable to subscribe to the
view taken by my brother on claim No. 5A.
75. According to me, the defects point expressed by the learned
Single judge go to the root of the Award. They are not insulated
merely because the arbitral tribunal had clothed itself with the
jurisdiction over the disputes. The legal foundation for the grant of
these claims is amiss.
Signature Not Verified
Digitally Signed By:AJIT
KUMAR
Signing Date:02.09.2026
18:21:54
FAO(OS) (COMM) 45/2025 Page 139 of 141
76. To my mind, the learned Single Judge has very well set aside
the impugned award on the ground of Patent illegality and has not
exceeded his jurisdiction under Section 34 of the Act. Thus, the
findings reached by the learned Single Judge deserve no interference.
OM PRAKASH SHUKLA, J.
Signature Not Verified
Digitally Signed By:AJIT
KUMAR
Signing Date:02.09.2026
18:21:54
FAO(OS) (COMM) 45/2025 Page 140 of 141
Point of difference
As C. Hari Shankar J has upheld the arbitral award with respect to
Claims 1, 3 and 3A and 5A and Om Prakash Shukla J has agreed with
the decision of the learned Single Judge to set aside the arbitral award
qua the said claims, the entire dispute with respect to these claims
would be required to be referred as the point of difference.
Accordingly, the point of difference is thus framed, for being placed
before Hon’ble the Chief Justice for being placed before a learned
Third Judge or a Larger Bench, as he would deem appropriate:
“Whether the decision of the learned Single Judge, with respect
to Claims 1, 3 and 3A and 5A is sustainable in law?”
The Registry is directed to place the papers before Hon’ble the Chief
Justice for appropriate orders.
C. HARI SHANKAR, J.
OM PRAKASH SHUKLA, J.
SEPTEMBER 02, 2026/ yg/aky/at
Signature Not Verified
Digitally Signed By:AJIT
KUMAR
Signing Date:02.09.2026
18:21:54
FAO(OS) (COMM) 45/2025 Page 141 of 141