Below is a guest post from Vaisakh Shaji. In the post below Vaisakh discusses a judgment on the importance of giving a reasoned award as well as result of delaying rendition of an award.
The Bombay High Court’s (‘The Court’)
recent decision in Dirk India Private Ltd[1]
(“Petitioner”) vs Maharashtra State Electricity Generation
Company Ltd (“Respondent”) AND Maharashtra State Electricity Generation
Company Ltd (as ‘Petitioner’) vs
Dirk India Private Ltd (as ‘Respondent’)
brings into focus certain important issues regarding the consequence of delay
in rendering arbitral award and also the importance of stating reasons for the
award.
Note: The Court decided two different
claims arising from the same arbitral award. In the second claim, Dirk India is
the respondent and the issue therein is with respect to damages sought by the
original Respondent. This part of the judgment will be discussed as second part
of this note.
Part one
Brief Facts:
The dispute between the parties
relate to Nashik Thermal Power Station (‘the plant’), which uses coal as fuel
for generation of electricity. The parties entered into an agreement dated
October 4th, 2000, according to which the Petitioner would use its
technology to dispose of waste product that is generated at the plant. The
Petitioner, a company based in United Kingdom specializes in recycling
by-products generated by thermal power stations. Pulverised Fly Ash (‘PFA’)
which is a waste product generated in coal fired thermal power stations, is
used by the Petitioner to manufacture cement replacement material.
As per the agreement, there were two
stages involved in disposing off PFA. In the first stage, the Respondent was to
provide PFA from the plant and deliver the PFA to the Plaintiff by depositing
the same in the Hoppers constructed by the Plaintiff and for this purpose a Dense
Phase Conveying System was to be built by the Respondent.
In the second stage, the Plaintiff
was to transport the PFA from the Hoppers to the PFA plant situated at the site
at the Plaintiff’s own cost and is its sole responsibility. Accordingly there
were two stages of transportation of PFA i.e. (a) ESP to Hoppers and (b) from
Hoppers to the PFA Plant.
Plaintiff’s
case:
A Dense Phase Conveying System was to
be built by the Respondent at their cost to enable them to provide PFA to the
Petitioner. Further, the Respondent was required to deposit the PFA in the
Hoppers constructed by the Petitioner. However, as the Respondent did not
construct the Dense Phase Conveying System, the Plaintiff had to resort to
manual removal of PFA. The Respondent
terminated the agreement illegally by alleging that it was the duty of the
Plaintiff to construct the Dense Phase Conveying System.
Respondent’s
case:
The respondents alleged that as per
the agreement, the Plaintiff was supposed to construct the hoppers and as they
did not do so, the question of Respondents releasing PFA through the hoppers
did not arise. Further they alleged that the Plaintiff was implementing the
agreement at their own will by constructing only one hopper and the rest
manually, resulting in spillage and causing pollution.
Arbitral
Tribunal
To adjudicate the dispute between
the parties, an Arbitral Tribunal of three Arbitrators, constituting senior
retired Judges was formed in 2007. The Arbitrators initially framed twenty two
issues, however modified them subsequently and narrowed it down to four issues
and a final award was passed in 2011.
The decision of the Tribunal was
challenged under section 34 of the Arbitration and Conciliation Act, 1996 (‘the
act’) by the Plaintiff on the grounds that:
- the Tribunal did not adjudicate on the real issues between the parties;
- Secondly, the award is without reason and did not consider the submissions made by the parties;
- Further there was gross delay in making the award which resulted in abandoning the issues that were framed and the arbitrators consequently missing key issues to be decided.
On examining the reasoning by the Tribunal,
the Court ascertained that during the process of adjudicating, the Tribunal
intermixed the issues and kept referring to Phase two of the agreement which
was never in dispute. The arbitrators brought onto themselves to decide an
issue which was never in dispute.
For deciding the dispute in the first
stage of the agreement, the arbitrators adjudicated by deciding the second
stage and mixed up the issues such that it was not possible to divest the two
from the Tribunals reasoning. The Court observed that the failure to
distinguish between two stages is a fundamental flaw.
Arbitral
award:
The Plaintiffs contended that,
firstly there was inordinate delay in rendering the award, as a consequence of
which the Tribunal lost its focus from the core issues of the dispute and
secondly, that the award is not without reasons.
The Court observed that, even though
an arbitral award need not be very detailed, unless the parties agree to the
contrary, the reasons have to be given in the award. If the parties go to the
Arbitrators with specific issues to be decided, not only they must be decided,
but the parties must be informed why the dispute was decided in a particular
manner.
Further, the Court held
that, “they may choose an arbitrator with
a judicial background if judicial expertise is what they want. Their choice
reflects how they want the arbitration to be conducted. Once the parties choose
an arbitrator with a judicial background, they expect that the arbitrator would
apply judicial and legal expertise and resolve the dispute evaluating the
veracity of assertions of both the sides. Parties expect the judicial mind will
understand and appreciate the real dispute between the parties better and bring
it into focus and give a just and reasoned decision”.[2]
On the issue of delay in
rendering the award, the Court noted that the Tribunal took more than a year in
rendering its final award and observed that had it been a lone consideration,
it would not have been sufficient to set aside the award, however the perverse
reasoning by the Tribunal coupled with the delay in its final decision would go
in the direction of attributing the delay as one of the factors due to which
the Tribunal side tracked from the real issues.
Applicability
of Section 34:
The Court stated that it may not be possible
to test the merits of the award, however if it is found that there exists a
fundamental flaw and it is intermixed, the entire award will be vitiated.
The second aspect with the award is
with respect to the issues that were framed. The Tribunal framed 22 issues
initially and at the time of passing the award, it narrowed it down to 4
issues. The serious fall out of this was that the Tribunal lost its focus on
identifying issues which are vital to the claims by the parties and ended up
overlooking or divesting certain issues which had to be addressed together such
as determining the Plaintiff’s liability for not collecting the PFA by
overlooking the issue of installing Dense Phase Conveying System.
The Court did not lay down any
further grounds on which a challenge can be brought under section 34 and relied
on the decision in ONGC vs Saw Pipes
on the applicability of section 34 of the Arbitration and Conciliation Act,
1996 for setting aside an award for error apparent on the face of it.
It relied on ONGC vs Garware Shipping
Corporation to state that courts can interfere if the award by an Arbitral
Tribunal contains perverse conclusions and finding on wrong basis.
Analysis:
This case once again brings into
focus the conduct of arbitration proceedings in India. The facts of the case
shows that, inordinate delays would lead to intermixing issues especially and a
speedy remedy as contemplated by parties cannot be achieved through an
alternate process. This will further, discourage foreign parties who make huge
investments in India to shy away from going for an alternate dispute resolution
process and comes in the way of making India a dispute resolution friendly
nation.
As stated in the 246th
Report of the Law Commission of India for reforms in the Arbitration and
Conciliation Act, 1996 the arbitration proceedings are
becoming a replica of court proceedings and frequent adjournments would lead to
setting aside of arbitral awards.
In Ircon International vs Arvind Constructions, the Court the question
of sufficiency is left with the arbitrator. And the duty of the court is to
look into the nexus between the reasons and the material before the arbitrator.
As long as the reasons lead to the conclusion made, it is sufficient. However
in Ircon the arbitrator was an
expert, being a retired Financial Commissioner of the Railway Board.
While appointing arbitrators from
technical background sufficiency of the arbitrators reasoning might be not
over-emphasised. However, in the present dispute, the three arbitrators were
retired judges and though there is no onus to pronounce a judgment as that of a Court, the necessary nexus between the issue
and the final adjudication is lacking.
Part two:
The second appeal decided by the
Court is regarding the counter-claim by
Maharashtra State Electricity Generation Co. (‘Mahgenco’) against Dirk India
which was dismissed in its entirely by the Tribunal.
The tribunal stated that Mahgenco did
not provide enough documentary evidence and on the additional ground that
Mahgenco did not challenge various orders passed by the High Court from time to
time.
It was contended for Mahgenco that,
it being a statutory body decided to comply with the orders of the High Court,
and that cannot be a reason to deprive it form claiming damages.
The court held that the mere fact
that interim order under section 9 of the act has not been challenged by
Mahgenco were not challenged by it, is not sufficient reason to dismiss its
claims.
Further it stated that the entire
claim of Mahgenco was dismissed in two paragraphs and the Tribunal refused to
look into the counter-claims. The Court agreed with the contention that such
approach by the Tribunal is perverse. Additionally, even though Dirk India
contested that Mahgenco is entitled to damages, they agreed with Mahgenco that
the awards passed are perverse and hence the Court found it an additional
ground to set aside the award.
