Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 19.03.2019
Date of Decision : 16.07.2019
+ O.M.P. 597/2012 & IA 11956/2012
RELIANCE INDUSTRIES LIMITED ..... Petitioner
Through: Mr.Paras Kuhad, Sr. Adv. with
Mr.K.R.Sariprabhu,
Mr.Shubranshu Padhi, Mr.Jitin
Chaturvedi, Ms.Aditi Tripathi,
Mr.Shuaib Hussain, Mr.Vishnu
Sharma & Mr.Kavin, Advs.
versus
GAIL(INDIA) LIMITED ..... Respondent
Through: Mr.Dhruv Mehta, Sr.Adv. with
Ms.Manmeet Arora, Mr.Sarad K
Sunny & Mr.Harkirat Singh, Advs.
+ O.M.P. 648/2012
M/S GAIL(INDIA) LTD ..... Petitioner
Through: Mr.Dhruv Mehta,Sr. Adv. with
Ms.Manmeet Arora, Mr.Sarad K
Sunny & Mr.Harkirat Singh, Advs.
versus
M/S RELIANCE INDUSTRIES LTD ..... Respondent
Through: Mr.Paras Kuhad, Sr. Adv. with
Mr.K.R. Sariprabhu,
Mr.Shubranshu Padhi, Mr.Jitin
Chaturvedi, Ms.Aditi Tripathi,
Mr.Shuaib Hussain, Mr.Kavin and
Mr.Vishnu Sharma, Advs.
OMP Nos.597 & 648/2012 Page 1
CORAM:
HON'BLE MR. JUSTICE NAVIN CHAWLA
1. These petitions have been filed under Section 34 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as the „Act‟)
challenging the Arbitral Award dated 25.02.2012 passed by the Sole
Arbitrator (hereinafter referred to as „Impugned Award‟), as corrected by
the order dated 24.03.2012. Hereinafter, „Reliance Industries Limited‟
shall be referred to as the petitioner and „GAIL (India) Limited‟ shall be
referred to as the respondent.
2. The Impugned Award partially allowed the claim of the respondent
towards additional amounts claimed vide Debit Notes raised by the
respondent in 2008 for the amount of gas supplied, representing the
difference between amount remitted by the petitioner for the period
between 01.08.2005 to 31.08.2008 and amount found payable by virtue
of Article 11.02, along with interest @ 9% p.a. from the date of the
Award, on the aforesaid amount to be determined by the respondent.
3. The disputes between the parties arose in relation to the Gas
Supply Agreement (hereinafter referred to as the “Agreement”) dated
30.03.2000 for supply of Natural Gas by the respondent to the petitioner
for extraction of C2 (Ethane) and C3 (Propane) fractions after removal of
CO2 (Carbon Dioxide) in the petitioner‟s Petrochemical Plant located at
Dahej, Gujarat. The Agreement was initially executed between the
respondent and „Indian Petrochemicals Corporation Limited‟ (“IPCL”),
however, on IPCL being taken over by the petitioner in 2002, the
petitioner assumed all the rights and obligations of IPCL under the
Agreement. The original period of the Agreement was uptil 01.01.2005,
OMP Nos.597 & 648/2012 Page 2
however, the same was extended on a number of occasions, the last
extension being uptil 31.08.2008.
4. As per Clause 4 of the Agreement, which provides for the
mechanism for delivery and return of gas, the supply of gas by the
respondent was to be made in two phases; Phase I period was from
01.01.2000 upto 31.12.2000; and Phase II period was from 01.01.2001
onwards. The disputes between the parties pertain to Phase II of the
Agreement.
5. During Phase II, the Gas was to be supplied from the respondent‟s
LPG plant in Gandhar to the petitioner at the outlet of the Gas Metering
Station No. 4 in the respondent‟s LPG plant in Gandhar (hereinafter
referred to as the “Point of Onward Delivery”), whereafter the petitioner
was to process the gas for extraction of C2 (Ethane) and C3 (Propane)
fractions after removal of CO2 (Carbon Dioxide) in its plant at Dahej and
deliver back the balance quantity of the Gas to the respondent at the
outlet of Gas Metering Station No. 5 in the respondent‟s LPG Plant at
Gandhar (hereinafter referred to as the “Point of Return Delivery”). The
processing of the Gas by the petitioner through extraction is referred to as
„Shrinkage‟ of the Gas and the resultant Gas denuded of C2 and C3
hydrocarbons is referred to as „Lean Gas‟.
6. Article 5 of the Agreement provides for terms relating to the
Quantity of Gas. It provides for the Daily Shrinkable Quantity of Gas to
be calculated as per formula given in Article 5.02. It refers to the
„Minimum Guaranteed Offtake‟ quantity, which is the minimum sum of
80% of the Daily Shrinkable Quantity, as well as the charges to be paid
for overdrawal of the Gas by the petitioner, that is, if the difference in the
OMP Nos.597 & 648/2012 Page 3
quantity of gas measured at the Point of Onward Delivery and Point of
Return Delivery/quantity of gas utilised by the petitioner is more than
110% of the quantity of gas calculated under Article 5.02. Article 5 of
the Agreement is reproduced below:
“ARTICLE -5 QUANTITY OF GAS
5.01 Subject always to the quantity of Gas made available
by ONGC from Gandhar fields and SELLER'S ability to
supply the same to the BUYER after processing of the same
for recovery of LPG at the SELLER'S Gandhar Plant, the
SELLER agrees to sell and deliver the gas at the Points of
Onward Delivery to the BUYER for extraction of C2 and C3
fractions after removal of C02 in the BUYER'S plant.
Provided that out of the daily quantity of GAS supplied to
the BUYER from the Gandhar fields, the consumption shall
not exceed the quantity of GAS shrinkable as calculated in
accordance with the formula given under Article 5.02 herein
below. Provided further that BUYER shall build alternative
fuel capabilities for meeting their requirement.
5.02 The quantity of GAS shrinkable by the BUYER for
each day shall be worked out as follows:
xxxx
b) During Phase Two
S=Ax1.01 (0.003 C1+0.92 C2+C3+C4+C5 and
higher s+C02)/100 *
S-- Daily Shrinkable Quantity of GAS
A i) Shall mean the Quantity of GAS made
available by the SELLER to the BUYER on each such
day for the purpose of MGO calculation; and
ii) Shall mean the quantity of gas actually processed
by the Buyer on each such day for the purpose of
calculating actual shrinkage.
OMP Nos.597 & 648/2012 Page 4
C1 Daily average Mole % of Methane in
composition of GAS supplied by the SELLER
C2 Daily average Mole % of Ethane in
composition of GAS supplied by the SELLER
C3 Daily average Mole % of Propane in
composition of GAS supplied by the SELLER
C4 Daily average Mole % of Butane in
composition of GAS supplied by the SELLER
C5 and highers - Daily average Mole % of
Pentane and highers in composition of GAS
supplied by the SELLER
C02 Daily average Mole % of carbon-di-oxide in
composition of GAS supplied by the SELLER
The C5 and higher fractions contained in the Feed
Gas supplied to the BUYER would be spiked back into
the gas returned to the SELLER after processing by
the BUYER. In such a case the C5 and higher
fractions shall not be considered for calculating the
shrinkage as above. However, the C5 and higher
fractions contained in the aforesaid formula shall be
considered for calculation on the same is not spiked
back into the gas returned to the SELLER and all such
instances, whenever they occur, shall be immediately
informed by the BUYER to the SELLER.
In case the total supply of gas by the Seller to the
Buyer's plant is less than 3.8O MMSCMD on any
Day(s), the C2 recovery factor in the above formula
shall be taken as 0.88.
5.03 The BUYER shall pay to the SELLER for the quantity
of GAS utilized/shrunk by the BUYER subject to a
minimum of the fortnightly sum of Eighty(80) percent
of the daily shrinkable quantity (calculated in
OMP Nos.597 & 648/2012 Page 5
accordance with the formula mentioned at Article
5.02), hereinafter referred to as the Minimum
Guaranteed Off take (MGO) quantity. The quantity of
gas utilized/ shrunk by the BUYER shall be arrived at
by measuring the difference in the readings taken at
the Points of Onward Delivery and the Points of
Return delivery (subject to the provisions contained
under article 4.09). The quantity of gas made
available by the SELLER to the BUYER on any Day
shall be arrived at by a summation of the
measurements taken at the Points of Onward Delivery
for supply of Feed Gas and the measurements taken at
the meter installed on the bye-pass pipeline
connecting Feed Gas and Return Gas pipelines. In
case the BUYER is unable to take all the quantity of
gas made available by the SELLER, on any Day(s) for
processing, the quantity of gas made available by the
SELLER, as above, shall be considered for
calculating the MGO charges as provided herein
above. Provided further that during Phase One of
supply of gas from Gandhar fields the MGO charges
as above shall be calculated on the basis of the
quantity of gas actually supplied by the SELLER to
the BUYER. Provided further that during the period
01.01.2000 to 31.03.2000 the shrinkage formula as
above shall not be applicable and billing to the Buyer
shall be based on the difference of the measurements
taken at the Points of Onward Delivery and Points of
Return Delivery. Provided further that if, on any
Day(s) , the Seller is unable to supply a total of at
least 3.80 MMSCMD of Gas to the Buyer's plant, the
Buyer shall have the option not to take delivery of gas
on such day(s) and in such an event MGO charges
shall not be applicable. If, however, the Buyer opts to
take Gas when the Seller is unable to supply a total of
at least 3.80 MMSCMD, the shrinkage shall be
calculated as per formula provided under article 5.02
for supply under Phase One and Phase Two.
OMP Nos.597 & 648/2012 Page 6
5.04 Subject always to the provisions contained under
Article 4.09, in case on any Day(s), the difference in
the quantity of gas measured at the Points of Onward
Delivery and the Points of Return Delivery ie, the
quantity of gas utilized by the BUYER, is more than
One Hundred and Ten Percent (110%) of the quantity
of Gas as calculated through the formula provided
under Article 5.02 hereinabove, the Buyer shall pay to
the SELLER, for the difference in the quantity of gas
utilized and the quantity of gas calculated as per
formula, at one and a half (1.50) times the average
price of gas calculated with reference to the quantity
of gas shrunk utilized by the BUYER (co1.18 of the
Annexure VII to the contract).
5.05 The BUYER shall draw and SELLER shall supply
daily the quantity of GAS agreed to in Article 5.01
above at a uniform rate spread over a period of 24
(twenty four) hours.”
(emphasis supplied)
7. Article 11 of the Agreement, which is of particular importance to
the dispute, provides for the billing and payment on “whichever is
higher” basis out of three methods mentioned herein, and is quoted
below:
“ARTICLE -11 BILLING AND PAYMENT
xxx
11.02 Subject always to the provisions contained under Article
4.09 the SELLER shall raise invoice for each fortnight covering
the quantity of GAS utilized for process/ shrinkage as per the
formula provided under Article 5.02 or for the difference in the
total quantity of gas supplied by the Seller at the Points of Onward
Delivery and the balance quantity of gas received back from the
Buyer at the Points of Return Delivery or for the Minimum
Guaranteed charges as per Article 5.03 whichever is higher. These
invoices shall be raised in accordance with Article 4, Article 5,
OMP Nos.597 & 648/2012 Page 7
Article 6 and Article 10 of this contract. The SELLER will raise the
invoices for each fortnight and the BUYER agrees to pay the
invoices so raised in full within 3 (Three) working days of
presentation of the said invoice. If, for any reasons, the payment is
delayed or any disallowance is made from the invoice, the SELLER
will present the invoice for full amount or for the amount not paid
as the case may be to the Bank against the letter of credit and draw
the amount. The BUYER will make arrangements with the bank in
a manner that in such an eventuality the full L/C amount gets
automatically reinstated. An illustrative example of a fortnightly
invoice is attached as Annexure VII to this contract.
11.03 In case of any discrepancy / dispute, the BUYER shall lodge
a quantified claim with the SELLER within the period of 14
(Fourteen) days from the date of receipt of the related invoice. To
the extent the claim is admitted by the SELLER ,the SELLER shall
issue a credit note in favour of the BUYER and adjust the same in
the next invoice to be raised. The SELLER undertakes to settle the
claim of the BUYER within a period of 30 (Thirty) days from the
receipt of such claim, if found acceptable. Failure of the BUYER to
put forward any' claim within the time above specified shall be an
absolute waiver of any claim as also the BUYER's right to refer the
matter to arbitration.
11.04 The BUYER shall always, during currency of the
CONTRACT, keep a revolving Letter of Credit(L/C) operative as
stipulate in clause 11.01 and 11.02 above. In case L/C is not
operative and payment is delayed, an interest at a rate of Three
(3%) percent higher than the Prime Lending Rate (State Bank of
India) shall be charge on all delayed payments. Delayed payment
means any payment not received within the period provided in
Clause 11.02 above. In case of default in making payments by the
BUYER or failure of BUYER to keep L/C operative, without
prejudice to other rights under the CONTRACT the SELLER shall
be at liberty to stop supply of GAS without any L/C restored. The
provisions of Clause 5.03 would be applicable for billing and
payment for the period during which the supply of GAS is stopped
OMP Nos.597 & 648/2012 Page 8
on account delayed payment or L/C not being reinstated by the
BUYER.
xxx
11.06 The measurements of GAS quantity delivered at the Points of
Onward Delivery and the Points of Return Delivery will be jointly
certified by the BUYER and the SELLER for billing purposes.”
(emphasis supplied)
8. In terms of Article 1.11 of the Agreement, “Contract”, meant the
Contract alongwith Annexure-I to Annexure-VII. Annexure-VII was the
“Illustrative Gas Billing to IPCL” and had the following fields of
information:
1 2 3 4 5 6 7
S.No. Quantity Maximum MGO Quantity Calorific Quantity
Made Shrinkable Applicable Processed Value Actually
Available Quantity Cal Shrinkable
MMSCMD MMSCMD MMSCMD MMSCMD (K Cal) MMSCMD
(as per 2) (As per 5)
& formula) (80% of 3) & formula)
-Cont.-
8 9 10 11 12 13 14
Applicable Value of gas Quantity Calorific Applicable Value of gas Amount
Price Processed Returned Value Price Returned Payable
Including
15%
By
IPCL
(Rs.) (Rs.) MMSCMD (K.Cal) (Rs.) Discount (Rs.)
For off-spec
Based on
CV
Based on CV (Rs.)
plus
transmission
Charges
plus
transmission
charges
(58) (102) (9-13)
-Cont.-
15 16 17 18 19 20
Measured Quantity Balance Price to MGO Excess Qty
Consumption Be taken for Qty if any IPCL per Quantity If beyond
Billing To be billed 000SCM 110% of 7
MMSCMD MMSCMD (Rs.) MMSCMD MMSCMD
(higher of) (Compare (Compare
OMP Nos.597 & 648/2012 Page 9
(5-10) (7 or 15) (16-15) (14/15) 16 and 4) 15 & 7)
9. During the period of the Agreement and upto 2008, the billing and
payment for the supply of Gas was made on the basis of determination of
cost of supply of Gas as per the differentials of Gas supplied and
recorded at the Point of Onward Delivery and the Gas returned by the
petitioner after extraction as recorded at the Point of Return Delivery.
However, on 15.02.2008, the respondent served upon the petitioner a
Debit Note for Rs. 1,49,42,163/- for the period of the first fortnight of
February 2008, purportedly for the differential amount between quantity
of shrinkable gas determined under Article 5.02 and quantity of gas
calculated as per Point of Onward Delivery and Point of Return Delivery
differentials. Thereafter, further Debit Notes were sent for additional
amounts for the gas supplied to the petitioner in the years 2001-2008,
claiming balance payment on the basis of amount determined on
“whichever is higher” principle envisaged in Article 11.02 of the
Agreement. This led to the disputes between the parties that have been
adjudicated by the Sole Arbitrator through the Impugned Award.
10. The learned Arbitrator by his Impugned Award has held that the
respondent was entitled to raise the Debit Notes by applying the concept
of “whichever is higher” principle provided in Article 11.02 of the
Agreement. At the same time, the Arbitrator accepted the plea of
limitation raised by the petitioner and has held that the respondent shall
be entitled to the Debit Notes raised only for the period on and from
01.08.2005, which shall be reworked by the respondent. The respondent
OMP Nos.597 & 648/2012 Page 10
has further been held entitled to interest on the amount so worked at, at
the rate of 9% p.a. from the date of the Award.
11. Both parties aggrieved of the Impugned Award have challenged
the same. While the petitioner challenges the applicability and
interpretation of Article 11.02 and the right of the respondent to raise
Debit Notes by invoking the said Article of the Agreement, the
respondent challenges the restriction of such right by applying the Law of
Limitation as also the refusal of the Arbitrator to award interest as
claimed by the respondent before him.
12. The learned senior counsel for the petitioner submits that Article
5.03 of the Agreement is the “Charging” Article of the Agreement while
Article 11.02 merely provides for the raising of the invoices and payment
thereof. He submits that the Agreement provides for various distinct
concepts with regard to quantity of gas, which are as under:
(i) Gas Made Available i.e. the summation of the Gas measured
at the Point of Onward Delivery and the Bye Pass Meter;
(ii) Gas Supplied i.e. the Gas measured at the Point of Onward
Delivery;
(iii) Gas Actually Processed i.e. Gas which was processed at the
plant of the Petitioner;
(iv) Gas actually consumed/Utilized/Shrunk i.e. the difference
between the Gas measured at the Point of Onward Delivery
and the Point of Return Delivery.
13. Learned senior counsel for the petitioner further submits that for
Article 11.02 to be worked out, the quantity of gas utilized for
OMP Nos.597 & 648/2012 Page 11
process/shrinkage as per formula provided under Article 5.02, the
difference in the total quantity of gas supplied at the Point of Onward
Delivery and at the Point of Return Delivery, and the Minimum
Guaranteed Offtake as per Article 5.03, which was again based on the
value of the gas made available, are necessary inputs. However, in the
course of operation of the Agreement, the respondent deviated from the
contractual format, including Annexure-VII, and instead of providing all
information relevant for calculating the figures under Article 11.02, only
provided the information relevant for calculating the actual consumption
of gas.
14. Based on the above, the learned senior counsel for the petitioner
submits that an expressly stipulated modality for operation of the
Contract cannot be substituted with another modality on the presumption
that substituted methodology would possibly serve the same intended
purpose; a party to the Contract cannot unilaterally seek the substitution
of stipulated modality in the Contract by some other modality which it
claims to be identical.
15. On the other hand, the learned senior counsel for the respondent
submits that all relevant information as prescribed in Annexure-VII to the
Agreement was available in the „Joint Gas Tickets‟ and therefore, the
submission of the petitioner is ill-founded. He submits that before the
Arbitrator the plea taken by the petitioner was that the quantity
mentioned in methodology (i) in Clause 11.02 should be understood not
as an independent methodology for payment, but a formula evolved for
the limited purpose of ascertaining the MGO. The Arbitrator rejected the
OMP Nos.597 & 648/2012 Page 12
said arguments and it is not open to this Court to interfere with such
interpretation of contractual terms by the Arbitrator.
16. Before proceeding further with the submissions made by the
learned senior counsels for the parties, it would be advisable to quote the
relevant findings of the Arbitrator in this regard:
“After giving my earnest consideration to the rival
submissions, I find it difficult to agree with Mr.Uday Lalit
that the methodology (i) in Article 11.02 is mentioned only
for the limited purpose of ascertaining the MGO mentioned
in methodology (iii) and that it is not an Independent
methodology. The language of Article 11.02 is clear and
unambiguous. Leaving aside the opening parenthetical
clause (“subject always to the provisions contained under
4.09", which, both parties agree, is of no relevance on the
question at issue), Article 11.02 says:
"the seller shall raise invoice for each fortnight.
Covering the actual quantity of gas supplied for
process / shrinkage as per the formula provided
under Article 5.02; or for the difference in the
total quantity of gas received back from the
buyer at the points of return delivery; or for the
minimum guaranteed charges as per Article
5.03, Whichever is higher".
Indubitably, therefore, all the three methodologies
mentioned in Article 11.02 are bases for payment and
whichever methodology yields the higher price, it has to be
adopted in the invoice issued. Accepting Mr.Lalit's
submission would mean doing violence to the express
language in Article 11.02; indeed to re-writing of the said
provision. It may also be seen that MGO charges mentioned
in methodology (iii), can always be ascertained with
reference to Article 5.03 read with Article 5.02 and it is not
necessary to resort to methodology (i) in Article 11.02 for
OMP Nos.597 & 648/2012 Page 13
this purpose. Once the gas made available is known
(ascertained as set out, in third sentence of Article 5.03) and
the gas actually shrunk is also known (as indicated in the
second sentence of Article 5.03) the formula mentioned in
Article 5.02 can be applied to find out the MGO quantity. In
other words, it is not necessary to limit the scope and ambit
of the methodology (i) in Article 11.02, as suggested by Mr
Lalit for the purpose of ascertaining the MGO quantity
mentioned in methodology (iii). The specific and
unambiguous language employed in Article 11.02 does not
permit any such curtailment. 'Shrinkage as per formula‟
(language used in columns 21 and 32 of joint gas tickets) is,
indisputably, "the quantity of gas shrinkable by the Buyer"
within the meaning of Article 5.02 referred to as the
"formula" in Articles 5.02, 5.03, 5.04 and 11.02. It is equally
relevant to notice that column 33 (MGO applicable) clarifies
that it is 80% the quantity mentioned in column 32 and that
it does not say that it is 80% of the first methodology in
Article 11.02. The floor guaranteeing the minimum payment
and the ceiling mentioned in Article 5.04 (and which excess
invites a penal rate) are worked out with reference to the
quantity arrived at by applying the formula in Article 5.02 -
and not on any other basis. All this shows that for
ascertaining the MGO quantity whether for the purposes of
Article 5.03 or Article 11.02, it is not necessary to cut down
the purport and scope of methodology (i) in Article 11.02
and that it (MGO Quantity) can be ascertained with
reference to the formula in Article 5.02 read with Article
5.0.3; similarly the „ceiling‟ aforementioned can also be
ascertained with reference to Article 5.02 read with Article
5.04 and Article 5.0.1.
Be that as it may, it is sufficient to say that adopting the
interpretation sought to be placed by Mr Lalit upon Article
11.02 would do violence to the clear language in Article
11.02. When the Article says that the invoice shall be raised
on the basis of any of the three methodologies mentioned
therein, one cannot read the methodology (i) as having been
evolved merely for ascertaining the quantity under
OMP Nos.597 & 648/2012 Page 14
methodology (iii), thereby practically ineffectuating
methodology (i).
I am, therefore, of the opinion that where the
shrinkable quantity / shrinkage as per formula mentioned in
columns 21 and 32 happened to be higher than the quantity
mentioned in column 10 (quantity actually shrunk /
consumed), the invoice has to be prepared adopting the
shrinkage formula figure. Mr Vasisht submitted that the
Debit Notes sent in the year 2008 were prepared adopting
this basis alone. He also points out with reference to the
correspondence that passed between the parties in the year
2008 that at no point of time had the Respondent disputed
the correctness of the calculations on the basis of which the
demand for additional amount was raised; only the basis /
methodology on which the additional amount was demanded
was disputed and I am inclined to agree with Mr Vasisht.
I may also mention that in view of the entries in Joint
Gas Tickets which were jointly recorded and Signed by both
the parties, the distinction sought to be raised between „gas
made available‟ and „gas actually processed‟ is only of
academic Interest. The Joint Gas Tickets record in column 5
the „total gas GPC-to IPCL‟, which means the total gas sent
to and processed by the Respondent.
xxxxx
Now, I may go back to the basic issue.
While it is true that no words in the Contract can be
treated as superfluous or unnecessary, I am faced with a
tricky situation where I am obliged to disregard one of the
three methodologies mentioned in Article 11.02. To wit,
either I accept Mr Lalit's interpretation and ineffectuate
methodology (i) or accept Mr Vasist's interpretation and
ineffectuate methodology (iii). On this question, the
following considerations make me prefer the interpretation
urged by Mr Vasisht in, preference to the interpretation
urged by Mr Lalit.
A : Firstly, the objective behind and the significance of
the concept of 'shrinkable quantity' specified in Article 5.02
OMP Nos.597 & 648/2012 Page 15
('the formula'). The objective behind prescribing this
formula is that it was understood and stipulated as the
optimum quantity which the Respondents expected to
consume I shrink. The minimum and the maximum were
prescribed based on this concept viz., the consumption/
actual shrinkage should not go below 80% of the shrinkable
quantity and it should not also go beyond 110% of the said
shrinkable quantity. If the consumption was below 80% of
the shrinkable quantity the Respondent had necessarily to
pay the charges based upon 80% of the shrinkable quantity;
correspondingly, if the gas consumed / shrunk was more
than 110% of the shrinkable quantity, it had to pay charges
at an enhanced rate which can be called penal rate as well.
It is, therefore, clear that the shrinkable quantity specified in
Article 5.02 is a central and an important concept in this
Contract. It is for this reason that the Respondent was
describing the formula of shrinkage quantity contained in
Article 5.02 as a theoretical formula in its letters dated
13.6.2008, 2.7.2008 and 9.7.2008. It may I also be
emphasized that the formula prescribed in Article 5.02 is
repeatedly referred to as the formula in the other provisions
of the Contract viz., the last sub-para in Articles 5.02 (b),
5.03, 5.04, 10.02 and 11. 02. This repeated reference to the
formula in Article 5.02 indicates its central significance.
B : If the objective behind the aforesaid formula of
shrinkable quantity is of such central importance in the
Contract, it is only just and proper that the Respondent
honours the said commitment by observing and
implementing the „whichever higher‟ basis prescribed by
Article 11.02. Article 11.02 prescribes three methodologies
of which the first one is the „shrinkable quantity‟ as per the
formula in Article 5.02. The contents of the Minutes of the
Meeting dated 7.2.2000 though not strictly admissible as
mentioned hereinabove, yet furnishes the background and
the reasons for which the particular formula in Article 5.02
was stipulated in the Contract.
C : As against the central importance of the formula
relating to shrinkable quantity, the concept of minimum
OMP Nos.597 & 648/2012 Page 16
guarantee is of far less importance. Faced with the choice,
the language and spirit behind the Contract impels me to
accept the interpretation placed by the Claimant upon
Article 11.02 in preference to the interpretation contended
for by the Respondent.
For the above reasons, I am of the opinion that the
Respondent was bound to pay the charges in accordance
with the 'whichever higher' basis among the three
methodologies specified in Article 11.02. The demands for
the higher amounts raised by the Claimant in the year 2008
were, therefore, valid and in accordance with the terms of
the Contract, subject, of course, to the plea of limitation
which I shall deal with, presently. Accordingly, issues 2 and
sub-issues (a) and (b) of issue 3 are answered in favour of
the Claimant but subject to the plea of limitation as
discussed hereinafter.”
17. A reading of the above would clearly show that the Arbitrator has
given primacy to „whichever is higher‟ basis mentioned in Article 11.02
for the payment for the gas supplied by the respondent to the petitioner.
This being an interpretation of the Contract by the Arbitrator, which in no
manner can be said to be arbitrary or fanciful, cannot be interfered with
by this Court in exercise of its power under Section 34 of the Act.
18. In Associate Builders v. DDA, (2015) 3 SCC 49 the Supreme
Court has reiterated the limitation on the powers of the Court in matter of
interpretation of Contract in the following words:
“42. In the 1996 Act, this principle is substituted by the “patent
illegality” principle which, in turn, contains three subheads:
xxxxxx
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:
OMP Nos.597 & 648/2012 Page 17
“28. Rules applicable to substance of dispute. (1)-(2)
(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.
43. In McDermott International Inc. v. Burn Standard Co.
Ltd.,(2006) 11 SCC 181 this Court held as under: (SCC pp. 225-
26, paras 112-13)
“112. It is trite that the terms of the contract can be
expressed or implied. The conduct of the parties would also be a
relevant factor in the matter of construction of a contract. The
construction of the contract agreement is within the jurisdiction of
the arbitrators having regard to the wide nature, scope and ambit
of the arbitration agreement and they cannot be said to have
misdirected themselves in passing the award by taking into
consideration the conduct of the parties. It is also trite that
correspondences exchanged by the parties are required to be taken
into consideration for the purpose of construction of a contract.
Interpretation of a contract is a matter for the arbitrator to
determine, even if it gives rise to determination of a question of
law. [See Pure Helium India (P) Ltd. v. Oil and Natural Gas
Commission, (2003) 8 SCC 593:2003 Supp (4) SCR 561 and
D.D.Sharma v. Union of India.] (2004) 5 SCC 325.
113. Once, thus, it is held that the arbitrator had the
jurisdiction, no further question shall be raised and the court will
not exercise its jurisdiction unless it is found that there exists any
bar on the fact of the award.”
44. In MSK Projects (I) (JV) Ltd. v. State of Rajasthan,
(2011)10 SCC 573: 2012 3 SCC (Civ) 818, the Court held : (SCC
pp. 581-82, para 17)
OMP Nos.597 & 648/2012 Page 18
“ 17. 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. 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 ambiguity of the award can, in such cases, be resolved
by admitting extrinsic evidence. The rationale of this rule is that
the nature of the dispute is something which has to be determined
outside and independent of what appears in the award. Such a
jurisdictional error needs to be proved by evidence extrinsic to the
award. (See Gobardhan Das v. Lachhmi Ram, AIR 1954 SC 689,
Thawardas Pherumal v. Union of India, AIR 1955 SC 468, Union
of India v. Kishorilal Gupta & Bros.,AIR 1959 SC 1362, Alopi
Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588,
Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji, AIR 1965 SC
214 and Renusagar Power Co. Ltd. v. General Electric Co. (1984)
4 SCC 679: AIR 1985 SC 1156)”
45. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran,
(2012) 5 SCC 306, the Court held: (SCC pp. 320-21, paras 43-45)
“43 . In any case, assuming that Clause 9.3 was capable of
two interpretations, the view taken by the arbitrator was
clearly a possible if not a plausible one. It is not possible to
say that the arbitrator had travelled outside his jurisdiction,
or that the view taken by him was against the terms of
contract. That being the position, the High Court had no
reason to interfere with the award and substitute its view in
place of the interpretation accepted by the arbitrator.
44 . The legal position in this behalf has been summarised in
para 18 of the judgment of this Court in SAIL v. Gupta
Brother Steel Tubes Ltd. [(2009) 10 SCC 63: (2009) 4 SCC
(Civ) 16] and which has been referred to above. Similar
view has been taken later in Sumitomo Heavy Industries Ltd.
v. ONGC Ltd. [(2010) 11 SCC 296: (2010) 4 SCC (Civ)
OMP Nos.597 & 648/2012 Page 19
459] to which one of us (Gokhale, J.) was a party. The
observations in para 43 thereof are instructive in this behalf.
45 . This para 43 reads as follows: (Sumitomo case [(2010)
11 SCC 296 : (2010) 4 SCC (Civ) 459] , SCC p. 313)
43. … The umpire has considered the fact situation
and placed a construction on the clauses of the
agreement which according to him was the correct
one. One may at the highest say that one would have
preferred another construction of Clause 17.3 but that
cannot make the award in any way perverse. Nor can
one substitute one's own view in such a situation, in
place of the one taken by the umpire, which would
amount to sitting in appeal. As held by this Court in
Kwality Mfg. Corpn. v. Central Warehousing Corpn.
[(2009) 5 SCC 142 : (2009) 2 SCC (Civ) 406] the
Court while considering challenge to arbitral award
does not sit in appeal over the findings and decision
of the arbitrator, which is what the High Court has
practically done in this matter. The umpire is
legitimately entitled to take the view which he holds to
be the correct one after considering the material
before him and after interpreting the provisions of the
agreement. If he does so, the decision of the umpire
has to be accepted as final and binding.”
19. Even otherwise, the Joint Gas Tickets that were prepared by the
parties for purposes of raising the invoices had the following fields of
information:
Date SEMI RICH
GAS TO
IPCL
RICH GAS
TO IPCL
TOTAL
GAS TO
IPCL
LEAN GAS
IPCL TO
GPC
LEAN GAS
IPCL TO
GGC-IV
IPCL
SHRINKAGE
ENERGY
CONSUMED
QTY C.V QTY C.V QTY QTY C.V QTY C.V QTY BY IPCL
1 2 3 4 5=1+3 6 7 8 9 10=(5-(6+8)) 11=((12)+(34))-
(67)+(89))
OMP Nos.597 & 648/2012 Page 20
-Cont.-
SEMI GAS ANALYSIS SEMI RICH GAS
C1 C2 C3 C4 C5 C6 CO2 0.003C1 0.88C2 OR
0.92*C2
Shrinkage as Per Formula
12 13 14 15 16 17 18 19=0.000312 20=0.8813
OR 0.92*13
21=11.01(14+
15+16+17+18+19+20)/100
RICH GAS ANALYSIS RICH
GAS
SHRINKA
GE
AS PER
FORMULA
110% Of
Calculate
d
Shrinkag
e
C
1
C
2
C
3
C
4
C5 C6 CO
2
0.003*
C1
0.88*C
2 OR
0.92*C
2
SHRINKA
GE
AS
PER
FORMUL
A
RICH +
SRG
32=31+21
33=0.832 34=1.13
2
EXCESS
QUANTI
TY
35=10-32
2
2
2
3
2
4
2
5
26 27 28 29=0.0
03*22
30=0.8
8*23
OR
0.92*2
3
31=31.01
(2
4+25+
26+27+
28+29+30)
32=31+21 33=0.832 34=1.13
2
35=10*3
2
20. Though a comparison of the above Joint Gas Tickets with
Annexure-VII to the Agreement may on first blush show a difference in
the fields, a careful perusal of the same shows that this difference is
merely superficial in nature and the Joint Gas Tickets, in fact, provide
relevant information required for working out the methodology
mentioned in Article 11.02 of the Agreement. Mr.Dhruv Mehta, learned
senior counsel for the respondent has explained this as under:
i. Column 5 of the Joint Gas Ticket (JGT) = Column 2 of
Annexure-VII;
ii. Column 6 + Column 8 of JGT = Column 10 of Annexure-
VII;
iii. Column 32 of JGT = Column 3 of Annexure-VII;
iv. Column 33 of JGT = Column 4 of Annexure-VII;
OMP Nos.597 & 648/2012 Page 21
v. Column 35 of JGT = Column 20 of Annexure-VII
21. Learned senior counsel for the respondent submits that the parties
had clearly proceeded on the premise that there was no difference
between the quantity of gas made available by the respondent to the
petitioner and quantity of gas actually processed by the petitioner, and it
is on this basis that Article 5.04 of the Agreement was also worked out by
the parties.
22. On the other hand, the learned senior counsel for the petitioner
submits that the assumption of the respondent that Gas made available is
equivalent to the Gas actually processed is fallacious. These are two
different concepts and although “gas actually processed” has not been
defined in the Agreement, the same can only mean the quantity of gas
actually processed by the petitioner at its plant. He submits that the gas
actually processed by the petitioner would always vary from the “gas
made available” by the respondent because of various reasons like buffer
quantity of gas in the pipeline, which was approximately 35 km long,
variation in pipeline processor and temperature as well as general
weather conditions, operational parameters at petitioner‟s plant etc.
23. I have considered the submissions made by the learned senior
counsels for the parties. While theoretically the learned senior counsel for
the petitioner may be right in his submission that the quantity of Gas
made available by the respondent may vary from the quantity of Gas
actually processed by the petitioner, a perusal of the Joint Gas Tickets
shows that the parties have proceeded on the basis that there was no such
OMP Nos.597 & 648/2012 Page 22
difference in the two quantities. The Arbitrator has also observed so in
the Impugned Award in the following words:-
“I may also mention that in view of the entries in Joint Gas
Tickets which were jointly recorded and signed by both the
parties, the distinction sought to be raised between „gas made
available‟ and „gas actually processed' is only of academic
interest. The Joint Gas Tickets record in column 5 the „total gas
GPC to IPCL‟, which means the total gas sent to and processed
by the Respondent.”
24. I find no reason to disagree with the above observation of the
Arbitrator. I may only note that if the above quotation is disputed, then
the parties have no way of working out even Clause 5.04 of the
Agreement, however, it is an admitted case that the same was worked out
and the payment made by the petitioner for the excess quantity of gas
utilised by the petitioner.
25. For the above reason, I do not find any merit in the submission
made by the learned senior counsel for the petitioner that Article 11.02 of
the Agreement is not workable due to certain information being not
recorded in the JGT.
26. Learned senior counsel for the petitioner further contended that by
not raising invoices in terms of Article 11.02 of the Agreement but
raising invoices only on the basis of quantity of gas actually consumed,
that is the difference in the quantity of gas at the Point of Onward
Delivery and at the Point of Return Delivery, the respondent had clearly
deviated from the terms of the Agreement thereby abandoning the other
methodologies provided in Article 11.02 of the Agreement. The
OMP Nos.597 & 648/2012 Page 23
respondent knew of the contractual terms, however, by its conduct not
only waived the same but is also estopped from enforcing the same
inasmuch as, based on such conduct, the petitioner has irreversibly
altered its position by not recording the “gas actually processed”;
renegotiated the terms of the contract at the time of its renewal; and
structured its business and the processing of the plant. He places reliance
on the following judgments in support of his contentions:
a. Sha Mulchand & Co. Ltd. (in liquidation) by the Official
Receiver, High Court, Madras v. Jawahar Mills Ltd ., Salem
1953 SCR 351;
b. Jagad Bandhu Chatterjee v. Smt. Nilima Rani & Ors. , (1969)
3 SCC 445;
c. B.L. Sreedhar & Ors. v. K.M.Munireddy & Ors. , (2003) 2
SCC 355;
d. Supdt. Of Taxes, Dhubri & Ors. v. M/s Onkarmal Nathmal
Trust, (1976) 1 SCC 766
e. ZVI Construction Co. LLC v. University of Notre Dame,
(USA) in England (2016) EWHC 1924(TCC)
27. The Arbitrator has considered the plea of waiver and estoppel and
has held as under:
“ Issue No.4: Estoppel : A plea of estoppels has been rasied
in the written statement (para E of the preliminary
submissions at page 6). A plea of estoppels applies where the
person to whom the representation is made is not aware of
OMP Nos.597 & 648/2012 Page 24
the true state of facts and acts, in good faith on the
representation and alters his position in such a manner that if
the representation is withdrawn, he will suffer loss/prejudice.
In this case, no facts are placed before the Tribunal
attracting the above ingredients of the rules of estoppels.
Issue No.4 is accordingly answered against the
Respondent.
Issue No.5: Waiver : The plea of waiver is contained in
the very same para E of preliminary submission at page 6.
Waiver contemplates a conscious abandonment of a
particular claim. In this case there is no evidence that the
Claimant had consciously abandoned any part of its claim.
Therefore, this issue is also answered against the
Respondent.”
28. I am in agreement with the above findings of the Arbitrator. In the
present case, merely because the respondent has failed to raise the
invoices strictly in accordance with Article 11.02 of the Agreement, it
cannot be said that the respondent either waived its rights to do so or is
estopped from doing so. It is not denied by the petitioner that the invoices
in question were marked “provisional”. As held by the Supreme Court in
Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. & Ors., (1979) 2
SCC 409, „waiver‟ is a question of fact and it must be properly pleaded
and proved. „Waiver‟ means abandonment of a right and its basic
requirement is that it must be an intentional act with knowledge. In the
present case, the respondent by its conduct of not raising the invoices
strictly in accordance with the Article 11.02 of the Agreement, cannot be
said to have waived its rights under Article 11.02 of the Agreement.
OMP Nos.597 & 648/2012 Page 25
29. Estoppel again is a rule of evidence and can be invoked when one
person has by his declaration, act or omission caused or permitted
another person to believe a thing to be true and to act upon that belief. In
the present case, I do not find that by mere failure to raise invoices
strictly in accordance with Article 11.02 of the Agreement, the
respondent gave any such representation that this Article would not be
invoked in future thereby giving rise to a plea of estoppel against it.
30. In any case, plea of waiver and estoppel is matter of inference to be
drawn from the evidence led by the parties. They are question of fact. As
has been repeatedly warned, including in the case of Associate Builders
(Supra), when the Court is applying “public policy” test to an arbitration
award, it does not act as a Court of appeal and consequently errors of fact
cannot be corrected. A possible view of the Arbitrator on facts has to be
accepted as the Arbitrator is the ultimate master of the quantity and
quality of evidence to be relied upon and for the inferences to be drawn
thereform.
31. Learned senior counsel for the petitioner has further placed
reliance on the judgments in Amalgamated Investment and Property Co.
Ltd. (In Liquidation) v. Texas Commerce International Bank Ltd. ,
(1982) 1 QB 84 and Transmission Corpn. of Andhra Pradesh Limited &
Ors. v. GMR Vemagiri Power Generation Limited & Anr. , (2018) 3
SCC 716 to contend that by the subsequent conduct of the parties, the
parties should be deemed to have evolved a new methodology of billing
and should be held bound by it.
OMP Nos.597 & 648/2012 Page 26
32. I am unable to agree with the said submission of the learned senior
counsel for the petitioner. In the present case, Article 11.02 of the
Agreement clearly provides that the petitioner was liable to pay the
higher of the three figures mentioned in Article 11.02 of the Agreement.
By mere failure of the respondent to raise the invoices strictly in
accordance with Article 11.02 of the Agreement, it cannot be said that a
new Contract came into being between the parties.
33. Learned senior counsel for the petitioner has further submitted that
the Agreement dated 30.03.2000 was in the nature of an Agreement to
Sell within the meaning of Section 4(3) of the Sale of Goods Act, 1930.
He submits that „sale‟ took place with the supply and consumption of gas
and raising of the invoice for the same by the respondent. He submits
that there was no provision for raising a supplementary invoice or a Debit
Note thereafter. He submits that in terms of Section 9 of the Sale of
Goods Act read with Article 11.02 of the Agreement, the determination
of price took place with the raising of the invoice by the respondent and
the Contract of Sale stood discharged by performance. The invoices so
issued and when paid, therefore, discharged the Contract by performance.
He further submits that in terms of Section 55 of Sale of Goods Act, 1930
it is only an unpaid seller who has a right to sue for the price remaining
unpaid for the supply effected. In the present case, as the petitioner had
paid the invoices raised by the respondent in full, the claim of the
respondent before the Arbitrator was not maintainable.
34. At the outset, I may note that the plea based on the provisions of
Sale of Goods Act, 1930 was not raised by the petitioner before the
OMP Nos.597 & 648/2012 Page 27
Arbitrator, though a plea of lack of provision for raising supplementary
invoices/Debit Notes in the Agreement was raised. In my view, as this
plea, is not one of lack of jurisdiction of the arbitrator, but one of merit of
the claim of the respondent, it cannot be allowed to be raised for the first
time in challenge to the Award under Section 34 of the Act.
35. Even otherwise, as far as the plea based on lack of a provision in
the Agreement for raising supplementary invoice/Debit Notes is
concerned, the same is stated to be rejected. If a party makes a mistake in
the invoice raised, it can certainly amend the same by raising a
supplementary invoice/debit/credit note to make the invoice in
conformity with the terms of the Agreement. It is not denied by the
petitioner that, infact, such Debit/Credit notes were raised by the parties
on other issues as well.
36. Similarly, the arguments of the learned senior counsel for the
petitioner based on the provisions of the Sale of Goods Act, 1930 cannot
be accepted. All the terms of the sale of Gas, including the price on
which it was so supplied, were mentioned in the Agreement. Article
11.02 of the Agreement, in terms of Section 9 of the Sale of Goods Act,
1930, provided for the manner in which the price of Gas was to be
determined. The Agreement, therefore, did not stand discharged by
payment of an invoice that has not been raised in accordance with Article
11.02 of the Agreement. It is only with the payment of the invoice raised
in terms of Article 11.02 of the Agreement that the price as mentioned in
Section 9 of the Sale of Goods Act, 1930 would be paid by the buyer.
OMP Nos.597 & 648/2012 Page 28
37. The learned senior counsel for the petitioner then contended that
the first methodology provided under Article 11.02 of the Agreement was
a stipulation for payment of damages by the buyer to the seller for failing
to make full extraction of the constituents of Gas. He submits that clause
11.02, therefore, did not provide for the price of Gas but for damages,
which need to be proved by the respondent before claiming the same.
38. I am unable to agree with the said submission of the learned senior
counsel for the petitioner. Article 11.02 of the Agreement provides for
the manner of the determination of “price” of the gas supplied by the
respondent to the petitioner. It is not in form of damages for breach of
contract and therefore, Section 73 and 74 of Indian Contract Act, 1872
would have no application to such determination of the price of gas.
39. For the reasons stated hereinabove, I find no merit in the petition
filed by the petitioner.
40. This now brings me to the petition filed by the respondent to
challenge the Impugned Award. Learned senior counsel for the
respondent submits that the Arbitrator has erred in holding that the claim
raised by the respondent for the period prior to 01.08.2005 is barred by
the law of limitation. He submits that all invoices were marked
„provisional‟ and were subject to adjustment through debit and credit
notes. Therefore, the claims were not barred by the law of limitation.
41. I am unable to agree with the submissions made by the learned
senior counsel for the respondent. By merely marking an invoice
“provisional”, the parties cannot extend the period of limitation. Article
OMP Nos.597 & 648/2012 Page 29
11.02 of the Agreement clearly provides that the respondent shall raise
invoice for each fortnight, which the petitioner shall pay within three
working days of presentation of the invoice. Therefore, the period of
limitation would accrue from the raising of each fortnightly invoice and
on expiry of three days thereafter, whether marked provisional or
otherwise.
42. Learned senior counsel for the respondent further challenges the
Award of Interest at the rate of 9% p.a from the date of award till
realization. Placing reliance on Article 11.04 of the Agreement, he
submits that the respondent was entitled to interest at the rate of 3%
higher than the Prime Lending Rate of the State Bank of India on each of
the Debit Notes raised by the respondent. In this regard he places
reliance on the following judgments:
a. Secretary, Irrigation Department, Government of Orissa and
Ors. v. G.C. Roy, (1992) 1 SCC 508;
b. Simplex Concrete Piles (India) Pvt. Ltd. v. Union of India ,
2007 (3) Arb LR 394;
c. D.C. Kapur v. Delhi Development Authority & Anr ., (2006)
130 DLT 94;
d. Sunagro Seed Pvt. Ltd. v. National Seeds Corporation Ltd.,
2018 SCC OnLine Del 13053.
43. The Arbitrator, on the question of interest, has held as under:
“ ISSUE 8-Interest : The Claimant has asked for interest
@3% higher than the prime lending rate of the State Bank
of India on the amount of Rs.79,98,03,129/- (at page 42 of
the Statement of Claim). Having regard to the facts and
OMP Nos.597 & 648/2012 Page 30
circumstances of the case, I direct that the interest shall be
payable @ nine per cent per annum, from the date of this
Award. The issue is answered accordingly.”
44. A reading of the above would clearly show that the Arbitrator was
aware of the claim of the respondent, however, having regards to the
facts and circumstances of the case, thought it proper to award interest in
favour of the respondent at the rate of 9% p.a. only from the date of the
Award.
45. In terms of Section 31(7) of the Act, the Arbitrator has the
discretion to award pendente lite interest. Though such discretion cannot
be arbitrarily exercised by the Arbitrator, at the same time, if the
Arbitrator restricts or refuses grant of such interest having considered the
facts and circumstances of the case, it would not be open for this Court to
set aside the Award or grant additional interest merely because it may
find it to be more just and proper to do so.
46. In the present case, the respondent had not raised the Debit Notes
for additional amounts for a period of almost eight years. The petitioner
challenged the Debit Notes raising pleas which cannot be said to be
completely baseless. The Arbitrator having considered the facts thought
it fit to award interest only from the date of the Award. I do not,
therefore, consider it fit to interfere with such Award.
47. For the reasons stated hereinabove, I find no merit in the petition
filed by the respondent.
OMP Nos.597 & 648/2012 Page 31
48. Consequently both the above petitions are dismissed. The parties
shall bear their own costs.
NAVIN CHAWLA, J
JULY 16, 2019/vp
OMP Nos.597 & 648/2012 Page 32