Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 25.11.2019
Pronounced on: 04.03.2020
+ O.M.P. (COMM) 131/2017 & IA Nos.3379/2017 & 2642/2019
BHARAT SANCHAR NIGAM LTD ..... Petitioner
Through: Mr. Dinesh Agnani, Sr. Advocate
with Mr.L.B. Rai, Advocate.
versus
M/S AKSH OPTIFIBRE LIMITED ..... Respondent
Through: Mr.Amit Bansal, Mr. Vikas Goel
and Mr.Kunal Dutta, Advocates.
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
JYOTI SINGH, J.
1. Present petition has been filed under Section 34 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) seeking
to set aside the Award dated 27.10.2016 passed by the Sole Arbitrator.
2. The brief facts necessary to adjudicate the present petition are that
vide notice dated 19.09.2007, petitioner herein invited requests for
Expression of Interest (EOI) from interested parties for provision of
content to BSNL’s Broadband customers through a Content Delivery
Network (CDN). As per the case set up by the petitioner, the intention of
BSNL was to provide internet-based services only to its own customers at
affordable prices. It was a business model envisaged, wherein BSNL had
intended to join hands with a private party for commercial gains. The
EOI was not for sale of Bandwidth/MPLS by BSNL to the successful
O.M.P. (COMM) 131/2017 Page 1 of 26
bidder, but was to be used for provisioning of internet-based services to
BSNL’s customers only. Bidder was not required to give any financial
offer or revenue share percentage, which had already been determined by
BSNL and even the tariff to be charged from the customer was to be fixed
by BSNL.
3. Respondent emerged as a successful bidder and accordingly
Franchisee Agreement (hereinafter referred to as FA) was entered into on
02.06.2008. The Agreement was for a period of ten years and for
providing services in 20 cities listed in Annexure-III. Respondent was to
make available the CDN infrastructure and operate and maintain the
same. Petitioner was to provide Broadband access and connectivity of
the CDN equipment to its customers. The revenue generated was to be
shared between the parties in the manner specified in clause 4.4 of
Schedule IV to the FA. Respondent was to provide Performance Bank
Guarantees under the FA.
4. As per the petitioner herein, the services under the FA started in the
city of Jaipur in August 2008 but the respondent was using only intra-city
Bandwidth thus no charges were payable. As per the FA, no charges
were payable by the respondent for intracity usage, but for intercity
Bandwidth usage respondent had to pay the charges which were to be the
‘Competitive Port Tariff’ for MPLS services from time to time.
5. It is an admitted case between the parties that Chandigarh was the
first city where services were launched on 06.02.2009, using inter-city
bandwidth.
6. According to the petitioner, it first raised its demand against the
Respondent towards bandwidth charges vide letter dated 30.09.2008,
O.M.P. (COMM) 131/2017 Page 2 of 26
claiming Rs.1.12 Crores annually, for 20 locations. This was only a
tentative demand. Another provisional demand was raised vide letter
dated 11.12.2008 for Rs.40.16 Crores per annum for 20 cities. Petitioner
thereafter sent a letter dated 20.01.2009 requiring the respondent to make
the payment and it was stated that failure to do so would result in
disconnection of the connectivity.
7. Petitioner further avers that the respondent vide its letter dated
11.02.2009 proposed for collection of one-time fee of Rs.30 Lakhs or
annual charges of Rs.6 Lakhs for all locations. Vide another letter dated
11.02.2009, respondent reiterated its request and also suggested an
alternative criteria being, bandwidth charges to be paid at Rs.5/- per
commercial connection, per month. A number of letters exchanged
between the parties thereafter did not result in any final resolution on the
charges payable by the respondent and finally the petitioner vide letter
dated 18.05.2011 called upon the respondent to explain why the FA
should not be terminated, in view of Clause 5.3.2 thereof.
8. Significantly, respondent vide letters dated 31.08.2012 and
26.09.2012 wrote to the petitioner placing on record the huge amount
invested by it in the IPTV business as well as the total revenue generated
being Rs.6.4 Lakhs, per city, against which the demand of the petitioner
was for Rs.19 Lakhs, per city, per annum. Respondent claimed that on
paying the huge charges so demanded, there would be no business sense
in the respondent continuing to run the services.
9. Finally, the petitioner issued a demand note thereby demanding a
sum of Rs.178,413,410/- towards bandwidth charges for IPTV for all 20
cities. The respondent thereafter approached this Court in a petition
O.M.P. (COMM) 131/2017 Page 3 of 26
under Section 9 of the Act and vide order dated 02.11.2012 Court
directed the petitioner not to take coercive steps against the respondent
and finally the matter was referred to Arbitration.
10. The respondent herein made the following claims before the
Arbitrator:-
“(i) Declaring that the demand of Rs. 17,84,13,410
mentioned in Respondent‟s letters dated 31.8.2012,
22.10.2012, Demand Note dated 26.10.2012 and letter
dated 29.10.2012 or any other amount towards
MPLS/bandwidth charges for IPTV connectivity from
the Claimant, is wrong, excessive and bad in law;
(ii) Declare that the provisions of the FA relating to
payment of MPLS/bandwidth charges for IPTV
connectivity, are void and Claimant is not liable to pay
any MPLS/bandwidth charges to the Respondent under
the FA Or
in the alternative, and without prejudice to (ii) above,
and in the event this Hon'ble Tribunal concludes
Bandwidth charges are payable under the FA, publish
an award determining such bandwidth charges as are
reasonable considering the proposal made by Claimant
to the Respondent, from time to time.
(iii) Declaring that the Bank Guarantees furnished by
the Claimant to the Respondent, details whereof are
given Annexure C-3 Colly hereof, can be invoked only
for reasons stated in clause 4.7.3 of the FA and for no
other reason; and
(iv) Award cost of the arbitration proceedings in favor
of the Claimant and against the Respondent.”
11. The petitioner herein filed statement of defence and also raised the
following counter claims :-
“Counter Claim No. 1
O.M.P. (COMM) 131/2017 Page 4 of 26
… a sum of Rs. 17, 84, 13,410/- (Rupees Seventeen
Crcres Eighty Four Lakhs Thirteen Thousand Four
Hundred and Ten Only) are due and payable by the
claimant to the respondent towards MPLS STM 4
Bandwidth charges the share of the revenue collected by
the claimant under the Franchisee Agreement…
Counter Claim No. 2
Cost of Arbitration of Rs. 10 lakhs”
12. The Arbitral Tribunal by its Award dated 27.10.2016 directed the
respondent herein to pay to the petitioner inter-city bandwidth charges at
the rate of Rs.5/- per connection, per month, for the period of actual
operation in all the 18 cities upto 31.12.2014, post which the inter-city
bandwidth was disconnected in 10 cities. The counter claims of the
petitioner were rejected.
13. Contention of the respondent before the Tribunal was that the FA
did not specify any parameter for arriving at the bandwidth / MPLS
charges towards inter-city bandwidth and this was an admitted fact by the
petitioner as also brought out by the petitioner’s witness during cross-
examination in answer to Question no.33. As per the FA, the charges
were to be on the basis of competitive port tariff for MPLS services.
Such a clause is void under Section 29 of the Indian Contract Act, 1872.
It was also argued that this was fortified by the conduct of the petitioner
since the beginning of the contract. It had initially raised a provisional
demand for Rs.1.12 Crores but thereafter it was increased to Rs.14 Crores
per annum and finally, revised to Rs.17.84 Crores. Even the demand for
20 cities was illegal as admittedly for Jaipur and Sangrur, no charges
were payable.
O.M.P. (COMM) 131/2017 Page 5 of 26
14. The respondent also argued that there was no evidence as to how
the figures claimed were arrived at. The demand of Rs.40 Crores was
stated to be based on a tariff circular dated 14.11.2008 which was
applicable to prospective customers. In reply to Question 65, petitioner’s
witness had agreed that the demand sent on 26.10.2012 was not based on
the said circular. The witnesses of the petitioner categorically stated that
they were not aware how the figure of Rs.17.84 Crores had been worked
out and one of the witnesses, Mr. M.H. Puranik had deposed that even
this demand was only provisional.
15. Respondent had further disputed the case of the petitioner that it
had published the competitive tariff rates on its website. It was argued
that if that was so, the FA would have specifically stated so. It was also
argued that had there been any rate available on the website, the demand
notice should have raised a final demand quoting the said rates and in
fact, the BSNL itself never relied on any rates available on the internet,
prior to the disputes arising and therefore, this was nothing but an after-
thought.
16. The respondent further argued that the services were to be provided
by the petitioner at affordable rates. Respondent had invested Rs.150
Crores in the project, besides a huge cost of Rs.6.86 Crores as contents
costs. The total revenue generated was Rs.7.92 Crores till 31.12.2014
after which Rs.79.14 Lakhs had been shared with BSNL. Thus, the
demand was not only arbitrary but against any business sense of entering
into a commercial venture.
17. Petitioner herein argued before the Tribunal that the MPLS charges
decided by the petitioner were to be final, as per the terms of the FA. It
O.M.P. (COMM) 131/2017 Page 6 of 26
was submitted that the inter-city charges were payable in advance by the
respondent as per Clause 4.3.4 of the FA. The petitioner had conveyed
the provisional amount payable in 2008 and 2009 itself, by which time
respondent had not availed of the services and if the demand was not to
its convenience, it should have refused to avail the services. Having
availed the services, it was not open for the respondent to question the
demands made. It was the case of the petitioner that the respondent had
no intention of paying the charges and instead of paying even the
tentative amount demanded, it kept on using the services and making
excuses and suggestions not to charge for the services. It is wrong for the
respondent to contend that there was no basis in the FA to charge for the
services as the meaning of the words ‘competitive rates’ was unclear. It
was submitted that these were internal rates fixed by the BSNL and the
same were made known to the respondent through the demand notices
well before it availed of the services. If the respondent had any doubts, it
should have sought clarifications.
18. The petitioner had further argued that the respondent itself never
placed any method or criteria for calculating the competitive prices. The
tariff circular was appliable to IPTV Franchisees and hence the
respondent was clearly covered under the said circular also. It was
argued that the Tribunal was bound to confine itself to the provisions of
the FA and could not have deviated from the same. The terms of the FA
stipulated the obligations of the respondent to pay an advance and the
demand having been raised by the petitioner at the outset the same should
have been honoured by the respondent.
O.M.P. (COMM) 131/2017 Page 7 of 26
19. Learned senior counsel for the petitioner and learned counsel for
the respondent have reiterated the above arguments before this Court as
well and therefore, the same are not being repeated for the sake of
brevity.
20. I have heard the learned counsels for the parties and examined the
contentions.
21. The Arbitral Tribunal framed three issues for adjudicating the
disputes between the parties, which are as under :-
“(i) if, as per the Franchisee Agreement, parties had
agreed that intercity MPLS/bandwidth connectivity was
to be provided by the Respondent to the Claimant on
chargeable basis and
(ii) if parties had agreed that the intercity
MPLS/bandwidth connectivity was to be provided on
chargeable basis, was there any agreement between the
parties about rates payable by the Claimant to the
Respondent for the same?; and
(iii) if there is no agreement between the parties
regarding the rates payable by the Claimant to the
Respondent for intercity bandwidth connectivity, can
such rates be fixed by the arbitral tribunal?”
22. For deciding the first issue, the Tribunal relied upon certain clauses
of the FA itself. Clause 3.6.2 provided that there shall be no charge by
the BSNL for intra-city connectivity and bandwidth. As per clause 3.6.3,
the charges for inter-city bandwidth were competitive rates of BSNL.
The Tribunal also relied upon clause 4.3.4 which provided for the
petitioners receivables and bandwidth charges were a part of the list of
receivable. The relevant clauses 3.6.2, 3.6.3 and 4.3.4 are as under :-
“3.6.2 Intra City connectivity and bandwidth shall be
provided and shall not be charged extra by BSNL within
O.M.P. (COMM) 131/2017 Page 8 of 26
city limits. Beyond city limits, it shall be provided on
chargeable basis.
3.6.3 Inter-city bandwidth shall be provided to the
franchisee on competitive rates of BSNL as the
franchisee is expected to locate a separate VoD server
for the additional city. BSNL shall be given first right of
refusal by the bidder for providing the intercity
bandwidth requirement of the franchisee.
4.3.4 The BSNL receivable from the franchisees are
bandwidth charges, co-location charges and share of
advertisement revenue. The Bandwidth charges and co-
location charges as applicable, shall be paid by the
franchisee in advance as per commercial conditions of
revenue, franchisee shall furnish a declaration of total
receipts on this account certifying the shareable revenue
th
to designated officer of BSNL by 7 of each month,
along with his bill. BSNL shall settle the claim of
revenue share after deducting the amount receivable on
account of its own revenue share of advertisement
revenue, and statutory levies if any, as per clause 4.3.2
and 4.3.3 above.”
23. Having analyzed the clauses, the Tribunal answered the first issue
as under :
“12. As far as the first issue is concerned, the answer is
contained in the Franchise Agreement itself. Clause
3.6.2 and 3.6.3 makes clear distinction about the intra
city bandwidth and intercity bandwidth. Clause 3.6.2
states that intra city connectivity and bandwidth shall be
provided and shall not be charged extra by BSNL within
city limits. Whereas clause 3.6.3 talks about intercity
bandwidth and states that the same shall be provided on
competitive rates of BSNL. Provisions similar to clauses
3.6.2 and 3.6.3 are also there in clauses 4.5.1 and 4.5.2
respectively of the Franchise Agreement. Even clause
4.3.4 throws some light on this issue. It provides for
BSNL's receivables from the franchisee/claimant and
O.M.P. (COMM) 131/2017 Page 9 of 26
'bandwidth charges' is one of the few items included in
the list of receivables of BSNL from Franchisee.
Therefore, there is no room of doubt that the contract
clearly provides that intra city bandwidth within city
limits would be provided free of cost but intercity
bandwidth was to be provided on chargeable basis. This
understanding on the part of the Claimant also comes
out clearly from the correspondences relied upon by the
Claimant itself. Claimant never denied or disputed its
liability to pay for the intercity bandwidth connectivity
used by it but its requests/representations to the
Respondent were confined to charging the same at
reasonable rates. The fact that Claimant himself
submitted different proposals to the Respondent for
payment of bandwidth charges also shows that Claimant
was always aware that it was liable to pay for the
intercity bandwidth connectivity, being used by it.
During the cross examination, Claimant's witness Mr.
Lalit Kumar also agreed that intercity bandwidth is
chargeable at reasonable prices. (Q-21)
Therefore, I hold that the parties had agreed, under the
Franchise Agreement that intercity bandwidth would be
provided to the Claimant on chargeable basis.”
24. As regards the second issue, the Tribunal examined clauses 3.6.3
and 4.5.2. Clause 4.5.2 reads as under :-
“4.5.2 For provision of VoD & IP TV/ Broadcast TV
services to the customers, Inter-City bandwidth shall be
provided, provided on chargeable basis at the
competitive port tariff for MPCL service from time to
time.”
25. Based on the provisions of the clauses as well as the arguments of
the parties as well as the documents and the evidence before it, the
Tribunal came to a conclusion that there was no agreement between the
parties regarding the rates of inter-city charges and the contract had no
O.M.P. (COMM) 131/2017 Page 10 of 26
provisions on the basis of which the competitive rates could be
calculated. The Tribunal observed that from the correspondences
exchanged between the parties, it was clear that both were acting on their
own interpretation and had no consensus on the issue of calculation of the
charges. It came to a finding that there was no parameter in the contract
for deciding the charges for inter-city connectivity. The Tribunal rejected
the contention of the petitioner that the competitive rates were available
on its website and observed that if that had been the case, the contractual
clauses would have referred to the rates on website. In fact, the Tribunal
also noted that wherever the bidders were required to make a reference to
the website, it was so stated specifically in the bid documents. The
Tribunal also found that prior to June 2008, petitioner was not providing
IPTV service and there was thus no possibility of any rates being
available on internet. The vast gap between the different demands made
by the petitioner was another factor which weighed with the Tribunal to
conclude that no rates were available on the website. Tribunal also relied
on the cross-examination of the petitioner’s witness who had agreed that
the FA had no parameters for deciding the competitive rates including the
ignorance of the witnesses about the methodology by which the demands
were raised. Relevant part of the Award reads as under:-
“17. It is, therefore, clear that parties were adopting
different basis for calculation of intercity bandwidth
charges, which establishes that there was no parameter
in the contract for deciding the bandwidth charges for
intercity connectivity. Respondent's contention that the
competitive rates was a reference to the rates available
on the internet is not correct as if that was so, contract
clauses would have been differently worded. Claimant
O.M.P. (COMM) 131/2017 Page 11 of 26
has pointed out that wherever bidders were required to
make reference to BSNL's website, a specific reference
was made in the bidding document. Secondly it has
come on record that prior to tune 2008 BSNL was not
providing IPTV service, therefore, there was no
possibility of any rates to be charged from IPTV
franchisee being available on internet. Furthermore,
there was a vast difference between the demands made
by the Respondent at different points of time. If the rates
were so available, as stated by the Respondent, nothing
prevented the Respondent from making the final demand
forthwith. What is also relevant to note here is that as
per the Franchise Agreement, Claimant was not buying
bandwidth from the Respondent. Such a bandwidth was
to be used by the Claimant for providing IPTV service,
exclusively to BSNL's customers under the Franchisee
Agreement. Therefore, even if any rates for intercity
bandwidth was available on Respondent's website, the
same would not have been relevant for the bandwidth
charges to be paid by a franchisee under the Franchise
Agreement. Respondent has placed reliance on its tariff
circular dated 14.11.2008 based on which provisional
demand dated 11.12.2008 was raised. However, it was
admitted by its witness during the cross examination
that the final demand dated 26.10.2012 was not based
on tariff circular dated 14.11.2008. Respondent's
contention is also not acceptable in view of the fact that
till 12.7.2010, Respondent could not raise any final
demand towards bandwidth charges, which was not
possible if there was any tariff available on
Respondent's website as payable by a Franchisee, like
the Claimant, for using intercity bandwidth.
18. During cross-examination, Respondent's witness
agreed that contract contained no parameter for
deciding the competitive rate for intercity bandwidth
connectivity. (Q-33)
Respondent's witness also expressed ignorance about
the manner in which different demands raised by the
O.M.P. (COMM) 131/2017 Page 12 of 26
Respondent, were arrived at. Respondent's witness
refused to answer the question as to how the demand
dated 26.102.12 was based on competitive rate
19. For the reasons stated above, I hold that there was
no agreement between the parties regarding the rates of
intercity MPLS/bandwidth payable by the Claimant to
the Respondent. Contract contains no provisions on the
basis of which competitive rate/tariff for intercity
bandwidth could be calculated.”
26. Having gone through the Award, this Court is of the view that there
is no patent illegality or perversity in this part of the Award. The
Tribunal has relied on the clear wordings of the clauses 3.6.2 and 3.6.3
where it was clearly stipulated that intercity bandwidth would be
provided to the respondent on chargeable basis. In so far as the second
issue is concerned, the entire record was replete with the fact that the
petitioner sent repeated demand notices for paying the inter-city
bandwidth charges, but each notice contained a different figure payable
by the respondent and that too, provisional. As rightly held by the
Tribunal the figures were nowhere near each other clearly indicating that
there was no set parameter to decide the rates and this also fortified the
stand of the respondent that there were no rates placed by the petitioner
on the website. The Tribunal was right in its observations that the
contract did not have any provision stipulating the actual rates chargeable
and nor was the petitioner able to point out any such provision. The
witnesses of the petitioner on the other hand admitted that there was no
fixed criteria under the contract for determining the charges. There is
thus no illegality in this finding of the Tribunal.
O.M.P. (COMM) 131/2017 Page 13 of 26
27. The third and the most crucial issue between the parties was the
rates at which the payments were to be made by the respondent in the
absence of there being any stipulated rates in the Agreement.
28. The Tribunal was of the view that since there were no rates in the
Agreement or even on the website, the Tribunal could fix the rates on a
reasonable criteria and reliance was placed for this purpose on the
judgment of the Orissa High Court in the case of Rajkishore Mohanty
and Anr. Vs. Banabehari Patnaik; MANU/OR/0020/1951 . This apart,
the Tribunal has noted in the Award that the parties were ad idem that the
Tribunal could fix a reasonable rate and this was within its domain and
jurisdiction.
29. The Tribunal decided the said issue as under :-
22. It is also to be noted that tariff to be charged from
the BSNL's customers were to be fixed by the
Respondent. During the course of the arguments, I was
informed by the parties that revenue generated from
providing IPTV service has been shared between them
as per the agreed ratio. Claimant's witness Mr. Guarav
Mehta has stated in his affidavit dated 21.2.2015 that
the total revenue generated by operation of IPTV
services is Rs. 791.66 lakhs as on 31.12.2014 out of
which Rs. 79.15 lakhs has been paid to the Respondent.
The figures of total revenue generated and contents cost
incurred by the Claimant have been certified by M/s. PC
Bindal & Co. in its certificate dated 18.2.2015 which is
Exhibit 1 to the affidavit of Mr. Gaurav Mehta. In
support of the contention that Claimant had incurred
content cost of Rs. 6.86 crores, Claimant filed additional
affidavit dated 14.1.2016 of Mr. Gaurav Mehta to place
on record details of payments made by the Claimant to
different content providers. Claimant had also
undertaken to produce its books of accounts and
O.M.P. (COMM) 131/2017 Page 14 of 26
documents supporting the content costs, for inspection
of the Respondent, which was not availed by the
Respondent. Claimant's figure of revenue generated and
shared between the parties has not been disputed by the
Respondent.
23. Claimant has incurred almost the same amount
towards content cost, as is the amount of revenue
generated by the Claimant from operation of the IPTV
services. This is without taking into account the other
investment Claimant was required to make to establish
necessary infrastructure for making IPTV services
operational. The tariff to be charged from the customers
is also decide by the Respondent. Though it is true that
every party doing the business has to take some risk, in
the present situation it applies to both the parties, as
agreement between them was admittedly a business
model. It is clear that the parties have entered in to
agreement without specifically agreeing as to how the
intercity bandwidth charges would be arrived at.
Claimant undertook to bear the cost of infrastructure
required for provisioning of IPTV service and
Respondent permitted use of its already available
bandwidth, as admitted by Respondent's witness in reply
to Q.19, for the same. What would be the charges for
use of the intercity bandwidth was not agreed to between
the parties. In a business venture like the one envisaged
in the EOI, it was natural for the Claimant to believe
that bandwidth cost would be within the commercial
viability of the business. Similarly, Respondent would
not have thought of charging high bandwidth cost
otherwise it would have clearly made a provision in the
contract, which has not been done. Again, if at all
Respondent was expecting high bandwidth charges, as
are being demanded now, it would have decided the
customer tariff in such a manner so that such cost of
bandwidth could be recovered from the revenue so
generated, which has not been done. Respondent cannot
provide IPTV service to its customer at the cost of
O.M.P. (COMM) 131/2017 Page 15 of 26
Claimant. Therefore, the demand of bandwidth charges
by the Respondent is neither justified nor reasonable but
is excessive and bad in law. Demand made in demand
note dated 26.10.2012 of the Respondent is set aside.
Award
Genesis of Franchisee agreement is that both the parties
are able to make reasonable profit out of the revenue
generated from the business over a period of time and
not out of the cost paid by one another to provide the
services. This required efforts on behalf of both the
parties to take all possible measures to promote and
grow business by increasing the customer base using
Broadband.
While Agreement contemplated provision of intercity
bandwidth on competitive rates which was a very vague
term. In order to provide services to customers at
affordable rates, It is necessary that competitive rates of
Bandwidth are fixed so that business remains viable to
both the parties, This is possible only when cost
incurred by the parties is covered out of the revenues
earned over a period of time.
Charges claimed by the respondent for intercity
Bandwidth are much more than the total revenue
earned. Thus these charges cannot be called
competitive. Moreover it is seen that total cost incurred
by the claimant on equipment and content is much more
than the total revenue earned. If the Bandwidth charges
claimed by respondent are also added then the whole
business becomes totally unviable.
Claimant has been representing to the respondent to
arrive at bandwidth charges on competitive rates
immediately after signing the agreement.
Claimant has proposed payment of bandwidth charges
on any of the following basis:
A. Once BSNL Broadband subscriber base reaches
1,00,000 or IPTV subscriber base crosses 15,000 in
a city/town, onetime fee of Rs.30 lacs for 9 years or
O.M.P. (COMM) 131/2017 Page 16 of 26
annual charges of Rs. 6 lacs per year can be
charged for upto 300 mbps MPLSVPN Bandwidth.
B. Rs.5/- per commercial connection per month as
bandwidth cost.
C. Increase of revenue share of BSNL to 11.5% in
place of 10% as agreed under the agreement in lieu
of no charges for intercity bandwidth.
Option of onetime fee, proposed by the Claimant
towards intercity bandwidth cost was conditional to
Subscriber base of Broad band and IPTV reaching
certain threshold value which has not happened.
Regarding Claimant's proposal of change of revenue
sharing percentage, the same cannot be directed as both
the parties are bound by the terms of the contract
agreed between the parties which cannot be changed.
Therefore, the viable option is to fix the bandwidth
charges on the basis of a fixed rate per month per
connection.
Claimant has proposed charging Rs. 5 per connection
per month. I accordingly direct that Claimant shall pay
to the Respondent intercity bandwidth charges at the
rate of Rs. 5 per connection per month for the period of
actual operations in all the 18 cities (other than Jaipur
and Sangrur). It has come on record that post
31.12.2014, IPTV services are not being provided in any
of the cities using intercity bandwidth. Intercity
bandwidth was disconnected in 10 cities as per
Respondent's letter dated 26.3.2013, Exhibit 2 to CW-2's
affidavit dated 21.2.2015. Intercity bandwidth was
disconnected in remaining 8 cities as per Respondent's
letter dated 21.11.2014, Exhibit 3 to CW-2's affidavit
dated 21.2.2015. Therefore, under the Franchisee
Agreemen, Claimant is not required to pay any further
amount towards bandwidth charges for the period after
31.12.2014. Claimant shall pay the amount calculated at
the rate of Rs.5 (Five only) per connection per month to
the Respondent within 30 days of receipt of this award.”
O.M.P. (COMM) 131/2017 Page 17 of 26
30. The Tribunal has based its finding on common business sense as
well as certain proposals submitted by the respondent. It held that the
charges claimed by the petitioner were much more than the total revenue
earned and thus, could not be termed as competitive. If the costs incurred
by the respondent on the equipment and content are looked at then the
charges if added would make the entire venture unviable. Respondent
had made three alternate proposals for fixing the rates. The Tribunal in
its wisdom and analysis chose the criteria of charging Rs.5/- per
connection, per month, which according to the Tribunal was the most
viable option. A detailed reasoning has been given by the Tribunal to
arrive at this conclusion.
31. The main grievance of the learned Senior Advocate for the
petitioner is that the Tribunal has arbitrarily fixed this rate, purely on the
basis of a letter dated 11.04.2009 written by the respondent and is not
based on any material. The Tribunal has not considered that from June
2008 to November 2014, not a single penny was paid by the respondent.
The Tribunal has also ignored the letter of the petitioner written on
31.08.2010 whereby it had made it clear to the respondent that if the rates
appeared to be on the higher side, then it could take the facility from any
other service provider. Once the respondent accepted to take the facilities
from the petitioner, it would be deemed that it had accepted the higher
rates.
32. Responding to this, learned counsel for the respondent submits that
the parties had agreed that the Tribunal would fix the reasonable rates
payable by the respondent. Once the Tribunal exercised this power and
arrived at a figure, it is not open to this Court under Section 34 of the Act,
O.M.P. (COMM) 131/2017 Page 18 of 26
to review the said finding and conclusion. It is argued that it is a matter
of record that petitioner adduced no evidence of the so-called competitive
charges and nor were there any, else the contract or the website would
have stated so. Three proposals were given by the respondent but the
petitioner did not raise any objection to either one of them. The Tribunal,
in the absence of any evidence being led by the petitioner to the contrary
has arrived at a figure which was uncontroverted by the petitioner and
this is not only a possible but a plausible view. Reliance is placed on the
judgment of the Supreme Court in Associate Builders vs. Delhi
Development Authority (2015) 3 SCC 49 , to contend that it is not for the
Courts to re-appreciate the evidence led before the Tribunal.
33. In my view, the respondent is correct in arguing that the Tribunal
has given a well-reasoned finding and it is not open for this Court to
review the same in the present proceedings. The parties were ad idem
that the Tribunal could fix the reasonable rates. The Tribunal analyzing
the evidence and the documents on record, found that no rates had been
fixed by the BSNL in the FA and there were none as alleged, on the
website. The petitioner did not give any proposal for fixation of the rates
and did not even controvert any of the three proposals given by the
respondent. The Tribunal in its assessment found that the one of the
proposals of the respondent was a viable option and accordingly,
determined the rate at Rs.5/- per connection per month. The finding is
well-reasoned and in the opinion of this Court not only a possible but a
plausible view.
34. The Supreme Court in the case of Associate Builders (supra) , held
as under :-
O.M.P. (COMM) 131/2017 Page 19 of 26
“19. When it came to construing the expression “the
public policy of India” contained in Section 34(2)(b)(ii) of
the Arbitration Act, 1996, this Court in ONGC Ltd. v. Saw
Pipes Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629] held:
(SCC pp. 727-28 & 744-45, paras 31 & 74)
“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 case [Renusagar Power Co. Ltd. v.
General Electric Co., 1994 Supp (1) SCC 644] 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.
*
74. In the result, it is held that:
O.M.P. (COMM) 131/2017 Page 20 of 26
(A)(1) The court can set aside the arbitral award under
Section 34(2) of the Act if the party making the
application furnishes proof 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.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal was not
in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the
Arbitral Tribunal was not in accordance with Part I of
the Act,
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was
not in accordance with Part I of the Act.
However, exception for setting aside the award on the
ground of composition of Arbitral Tribunal or illegality
of arbitral procedure is that the agreement should not be
in conflict with the provisions of Part I of the Act from
which parties cannot derogate.
(c) If the award passed by the Arbitral Tribunal is in
contravention of the provisions of the Act or any other
substantive law governing the parties or is against the
terms of the contract.
O.M.P. (COMM) 131/2017 Page 21 of 26
(3) The award could be set aside if it is against the public
policy of India, that is to say, if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged:
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act.
(B)(1) The impugned award requires to be set aside
mainly on the grounds:
(i) there is specific stipulation in the agreement that the
time and date of delivery of the goods was of the essence
of the contract;
(ii) in case of failure to deliver the goods within the
period fixed for such delivery in the schedule, ONGC was
entitled to recover from the contractor liquidated
damages as agreed;
(iii) it was also explicitly understood that the agreed
liquidated damages were genuine pre-estimate of
damages;
(iv) on the request of the respondent to extend the time-
limit for supply of goods, ONGC informed specifically
that time was extended but stipulated liquidated damages
as agreed would be recovered;
(v) liquidated damages for delay in supply of goods were
to be recovered by paying authorities from the bills for
payment of cost of material supplied by the contractor;
(vi) there is nothing on record to suggest that stipulation
for recovering liquidated damages was by way of penalty
or that the said sum was in any way unreasonable;
(vii) in certain contracts, it is impossible to assess the
damages or prove the same. Such situation is taken care
of by Sections 73 and 74 of the Contract Act and in the
present case by specific terms of the contract.”
O.M.P. (COMM) 131/2017 Page 22 of 26
35. In the case of Ssangyong Engineering & Construction Co. Ltd. vs.
National Highways Authority of India Ltd. 2019 SCC OnLine SC 677 ,
the Supreme Court has laid down the Guidelines regarding the scope of
interference by Court under Section 34 of the Act in the findings and
conclusions of an Arbitral Award. Relevant para reads as under :-
“35. What is clear, therefore, is that the expression
“public policy of India”, whether contained in Section 34
or in Section 48, would now mean the “fundamental
policy of Indian law” as explained in paragraphs 18 and
27 of Associate Builders (supra), i.e., the fundamental
policy of Indian law would be relegated to the
“Renusagar” understanding of this expression. This
would necessarily mean that the Western Geco (supra)
expansion has been done away with. In short, Western
Geco (supra), as explained in paragraphs 28 and 29
of Associate Builders (supra), would no longer obtain, as
under the guise of interfering with an award on the
ground that the arbitrator has not adopted a judicial
approach, the Court's intervention would be on the merits
of the award, which cannot be permitted post amendment.
However, insofar as principles of natural justice are
concerned, as contained in Sections 18 and 34(2)(a)(iii)
of the 1996 Act, these continue to be grounds of challenge
of an award, as is contained in paragraph 30 of Associate
Builders (supra).
36. It is important to notice that the ground for
interference insofar as it concerns “interest of India” has
since been deleted, and therefore, no longer obtains.
Equally, 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”. This again would be in line with
paragraphs 36 to 39 of Associate Builders (supra), as it is
only such arbitral awards that shock the conscience of the
court that can be set aside on this ground.
O.M.P. (COMM) 131/2017 Page 23 of 26
37. Thus, it is clear that public policy of India is now
constricted to mean firstly, that a domestic award is
contrary to the fundamental policy of Indian law, as
understood in paragraphs 18 and 27 of Associate
Builders (supra), or secondly, that such award is against
basic notions of justice or morality as understood in
paragraphs 36 to 39 of Associate Builders (supra).
Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to
Section 48(2)(b)(ii) was added by the Amendment Act only
so that Western Geco (supra), as understood in Associate
Builders (supra), and paragraphs 28 and 29 in particular,
is now done away with.
38. Insofar as domestic awards made in India are
concerned, an additional ground is now available under
sub-section (2A), 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.
39. Secondly, it is also made clear that re-appreciation 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.
40. To elucidate, paragraph 42.1 of Associate
Builders (supra), namely, a mere contravention of the
substantive law of India, by itself, is no longer a ground
available to set aside an arbitral award. Paragraph 42.2
of Associate Builders (supra), 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.
O.M.P. (COMM) 131/2017 Page 24 of 26
41. The change made in Section 28(3) by the Amendment
Act really follows what is stated in paragraphs 42.3 to 45
in Associate Builders (supra), 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(2A).
42. What is important to note is that a decision which is
perverse, as understood in paragraphs 31 and 32
of Associate Builders (supra), 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.”
36. Recently in the case of Hindustan Construction Company Limited
& Anr. Vs. Union of India & Ors., 2019 SCC OnLine SC 1520 , the
Supreme Court has further narrowed down the scope of interference. The
relevant para reads as under :-
“55. Further, this Court has repeatedly held that an
application under Section 34 of the Arbitration Act, 1996
is a summary proceeding not in the nature of a regular
suit - see Canara Nidhi Ltd. v. M. Shashikala 2019 SCC
O.M.P. (COMM) 131/2017 Page 25 of 26
OnLine SC 1244 at paragraph 20. As a result, a court
reviewing an arbitral award under Section 34 does not sit
in appeal over the award, and if the view taken by the
arbitrator is possible, no interference is called for -
see Associated Construction v. Pawanhans Helicopters
Ltd. (2008) 16 SCC 128 at paragraph 17.
56. Also, as has been held in the recent
decision Ssangyong Engineering & Construction Co.
Ltd. v. NHAI 2019 SCC OnLine SC 677, after the 2015
Amendment Act, this Court cannot interfere with an
arbitral award on merits.”
37. Section 34 of the Act, as judicially interpreted from time to time,
has encapsulated the strict parameters on which interference is called for
by the Courts.
38. Examining on the touchstone of the said law, while traversing
through it, in my view, none of the parameters laid down permit this
Court in its powers of judicial review to interfere with the impugned
Award.
39. There is no merit in the petition and the same is accordingly
dismissed.
I.A. 3379/2017
In view of the petition being dismissed, no orders are required in
the present application.
I.A. 2642/2019
Bank Guarantees have expired on 25.11.2019. Since the petition
has been dismissed, no order is required in the present application.
JYOTI SINGH, J
th
MARCH 4 , 2020
yg/yo/
O.M.P. (COMM) 131/2017 Page 26 of 26