Delhi High Court
Il And Fs Paradip Refinery Water Limited vs Indian Oil Corporation Limited on 17 April, 2025
Author: Vibhu Bakhru
Bench: Vibhu Bakhru
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Pronounced on: 17.04.2025
+ FAO(OS) (COMM) 164/2023
IL&FS PARADIP REFINERY WATER LIMITED ..... Appellant
versus
INDIAN OIL CORPORATION ..... Respondent
+ FAO(OS) (COMM) 165/2023
IL&FS PARADIP REFINERY WATER LIMITED ..... Appellant
versus
INDIAN OIL CORPORATION ..... Respondent
For the Appellant : Mr. T. Srinivasa Murthy, Mr. Piyush Joshi,
Ms. Sumiti Yadava, Ms. Meghna Sengupta,
Ms. Trushita Srivastava and Ms. Manasvi
Kumar, Advocates.
For the Respondent : Mr. I.S. Alag, Sr. Adv. with Mr. Rajat Navet
and Mr. Kushagra Pandit, Advocates.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
HON'BLE MS. JUSTICE TARA VITASTA GANJU
JUDGMENT
TARA VITASTA GANJU, J.:
TABLE OF CONTENTS
Preface…………………………………………………………………2
Brief facts………………………………………………………………3
Impugned Judgment………………………………………………….5
Contentions of the Appellant…………………………………………9
Contentions of the Respondent………………………………………13
Analysis and Findings………………………………………………..18
Conclusion…………………………………………………………….40Signature Not Verified
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PREFACE
1. The present appeals are filed under Section 37 (1)(c) of the
Arbitration and Conciliation Act, 1996 [hereinafter referred to as
“Arbitration Act“], read with Section 13 Commercial Courts Act, 2015,
against a common judgement passed by the learned Single Judge,
pronounced on 03.05.2023 and released on 12.05.2023 in two petitions filed
under Section 34 of Arbitration Act in O.M.P. (COMM) No. 110/2018
captioned Indian Oil Corporation Ltd v. IL&FS Paradip Refineries Water
Ltd and O.M.P. (COMM) No. 111/2018 captioned IL&FS Paradip Refinery
Water Limited v. Indian Oil Corporation Limited [hereinafter referred to as
“Impugned Judgement”].
2. By the Impugned Judgement, the learned Single Judge decided the
petitions filed by the parties, both challenging an Arbitral Award dated
08.10.2017, (as modified by Order dated 12.11.2017) [hereinafter referred to
as “Arbitral Award”] as delivered by the Arbitral Tribunal [hereinafter
referred to as “Arbitral Tribunal”]. The learned Single Judge partially set
aside the Arbitral Award.
3. The challenge in the present Appeals is by IL&FS Paradip Refinery
Water Limited alone. The Appellant has bifurcated the reliefs they seek in
two separate appeals. In F.A.O.(OS)(COMM) No. 164/2023, the Appellant
seeks the grant of its Claim No.4, which has not been allowed either by the
Arbitral Tribunal or the learned Single Judge and also to set aside the
Arbitral Award on the Counter Claim of the Respondent in the sum of Rs.2
crores along with interest therein, as allowed by both Arbitral Tribunal and
the learned Single Judge.
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3.1 In addition, the challenge in F.A.O. (OS) (COMM) No. 165/2023 by
the Appellant is to restore the Arbitral Award on Claim No.2 and 3, which
have been set aside by the learned Single Judge.
BRIEF FACTS
4. Briefly, the disputes in the present appeals arise out of a Build-Own-
Operate-Transfer Basis Agreement dated 29.01.2010 executed by the
Respondent with the Appellant [hereinafter referred to as “BOOT
Agreement”] for transportation of water from Mahanadi River at Cuttack to
Paradip for Respondent’s Paradip Refinery Project. Under the terms of the
BOOT Agreement, the Appellant was entrusted with the construction and
development of five facilities:
(i) A water intake structure;
(ii) Installation of 93 KM (approx.) water pipeline;
(iii) Construction of a water reservoir at the refinery;
(iv) Development of a water treatment plant; and
(v) Construction of three treated water sumps.
4.1 The BOOT Agreement stipulated a completion period of 26 months
from the Letter of Acceptance dated 25.09.2009, making the intended
Commercial Operation Date [hereinafter referred to as “COD”] as
26.09.2011. However, the actual COD was achieved on 01.06.2014 after a
30-month delay.
4.2 Under the BOOT Agreement, the Appellant was responsible for the
project’s design, engineering, financing, procurement, construction,
operation, and maintenance. The payment was to be made through equated
monthly installments (EMIs) after successful project completion. The
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Request for Proposal indicated that the Respondent had secured preliminary
approvals from various authorities, including the Water Resources
Department (WRD) of Odisha, any additional permissions were to be
obtained by the Appellant in conjunction with the Respondent. Upon project
completion, disputes arose leading to claims by the Appellant. After
attempted mutual consultation through a communication dated 18.01.2016,
the matter proceeded to arbitration.
5. As stated above, the present appeals seek the grant of Claims No.2, 3
and 4 of the Appellant, and to set aside the three Counter-Claims awarded to
the Respondent. The Claims/Counter-Claims under challenge have been
extracted herein below for ease of reference:
Claim 2: Balance payment for the extra work done in respect
of laying of Cuttack City pipe line amounting to
Rs.32,62,62,322/-.
Claim 3: Interest Claim for the additional finances arranged
for carrying out extra work for laying the Cuttack City pipe
line amounting to Rs.12,47,62,438/-.
Claim 4: Claim for interest occasioned due to extended
construction period amounting to Rs.143,83,00,000/-
Counter-Claim No.1: For a sum of Rs.3,93,38,124/- towards
excess amount paid/being paid by the Respondent-Corporation
on account of de-scoping of work;
Counter-Claim No.2: And/or in the alternative for refund of
excess amount @ Rs.1,31,127/- per month being paid by the
Respondent to the Claimant from June 2014 till the date of
passing of the Award, with further directions that subsequent
thereto, the monthly EMI to be paid by the Respondent to the
Claimant shall be reduced by an amount of Rs.1,31,127-08 perSignature Not Verified
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month.
Counter-Claim No.3: Interest @ 18% on the excess
amount(s) paid from June 2004 till the passing of Award, to be
calculated from the date of payment till date of refund.
IMPUGNED JUDGEMENT
6. The learned Single Judge decided the challenge made by both the
parties by a single judgment – the Impugned Judgment. On the aspect of
Claim No.2, the Respondent challenged the Arbitral Award of Rs.7.93
crores granted to the Appellant for de-scoped work in the Cuttack City
pipeline project. The Respondent argued that this Arbitral Award
contradicted a settlement recorded in the Minutes of Meeting dated
12.02.2015 [hereinafter referred to as “MoM”], where disputes regarding de-
scoped work were stated to be resolved. It was contended that payment was
subsequently received without protest, as evidenced by the Appellant’s letter
dated 10.11.2015. The Respondent asserted that the Arbitral Tribunal erred
in awarding the claim based on an ad-hoc calculation, lacking evidentiary
support or a reasoned basis.
6.1 In response, the Appellant contended that the settlement under the
MoM pertained only to additional work and not the de-scoped work. The
Appellant also argued that the Arbitral Tribunal has the discretion to adopt
“honest guesswork” for determining damages or claims in the absence of
precise evidence, provided such discretion is exercised reasonably.
6.2 The learned Single Judge found that the MoM clearly reflected a
settlement of all disputes which would include the de-scoped work. It was
held that the Arbitral Tribunal’s interpretation of the document as excluding
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de-scoped work was perverse and unsupported by evidence. The learned
Single Judge also observed that while arbitral tribunals have some latitude to
award damages based on broad estimates, however, such decisions must be
rooted in evidence and sound reasoning. The Arbitral Tribunal’s approach of
awarding an amount equal to 2/3rds of the difference between the claimed
and offered amounts without adequate justification was deemed arbitrary
and unjustified. Thus, the Arbitral Award qua Claim No.2 was set aside by
the learned Single Judge.
7. The Arbitral Tribunal awarded Rs.12.48 crores in favour of the
Appellant towards its Claim No. 3 which pertained to interest for arranging
additional finances to undertake the extra work. The Appellant contended
that it had incurred additional costs, including interest on funds required for
this work. The Arbitral Tribunal partially accepted this claim, awarding 60%
of the amount sought to the Appellant. The Respondent contended that the
settlement recorded in the MoM had resolved all claims for additional work,
as acknowledged by the Arbitral Tribunal itself in relation to Claim No. 2.
The Respondent further argued that when the parties could not agree on an
interest rate for instalment payments, it was decided that the Respondent
would make a lump sum payment instead, which the Appellant accepted
without a reservation. Therefore, no further interest could be claimed by the
Appellant.
7.1 Conversely, the Appellant maintained that the settlement under the
MoM did not include any interest component. It argued that under the
contract, payments were to be made in instalments, but the Respondent
unilaterally opted to make a lump sum payment. The Appellant asserted that
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accepting the lump sum payment did not preclude its entitlement to interest
on the delayed payments.
7.2 The learned Single Judge observed that the Arbitral Tribunal itself
had found the MoM to reflect that it was the final settlement of claims for
extra work. This left no scope for awarding interest separately, as the
settlement terms did not include interest explicitly. Additionally, the learned
Single Judge noted that the Appellant had accepted the lump sum payment
without reserving any right to claim interest later. The learned Single Judge
also held that awarding interest on an advance lump sum payment
contradicted the established principles of law and finance. Accordingly, the
learned Single Judge set aside the Arbitral Award under Claim No. 3,
concluding that it was unsustainable.
8. The Appellant also challenged the Arbitral Tribunal’s rejection of
Claim No. 4, which sought interest on the costs incurred due to delays
caused by time overruns in the project. The Arbitral Tribunal dismissed this
claim, holding that the delays resulted from force majeure events as defined
under Clauses 15.1.3 and 15.3 of the BOOT Agreement, which would
preclude either party from claiming costs arising from such events. The
Appellant argued that the Respondent never formally invoked the force
majeure clauses and contended that the delays were due to the Respondent’s
actions. The Appellant further submitted that sufficient evidence was
presented to demonstrate the Respondent’s responsibility for the delays.
8.1 Per contra, the Respondent relied on its letter dated 26.08.2011, which
notified the Appellant of the applicability of a force majeure event under
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Clause 15.3(c) of the BOOT Agreement, specifying that each party must
bear its own costs during such period.
8.2 The learned Single Judge noted that Clause 15.1.3(iv) of the BOOT
Agreement defines political force majeure events to include orders from
competent authorities that materially impact project execution. The Arbitral
Tribunal had found that the withdrawal of permissions by the Odisha
government, conditions imposed for re-approval, and a High Court order
staying work constituted political force majeure events. These findings were
supported by evidence, including letters from the Appellant acknowledging
the force majeure situation. Thus, the learned Single Judge held that the
Arbitral Tribunal’s conclusion, was consistent with the terms of the force
majeure provisions in the BOOT Agreement and the evidence presented, and
required no interference. The Appellant’s challenge to the rejection of Claim
No. 4 was therefore dismissed by the learned Singe Judge.
9. On the aspect of the Counter-Claims, the Respondent asserted that the
scope of the Project was reduced from laying two pipelines to one, following
a directive from the Water Resource Department of Odisha. This change
impacted the scope of work, necessitating a reduction in the EMIs paid by
the Respondent.
9.1 The Arbitral Tribunal reviewed the Counter-Claim and found that
while the Respondent was justified in seeking an EMI reduction due to the
reduced scope of work, the data and calculations provided were overstated
and inadequately supported. Taking a balanced approach, the Arbitral
Tribunal made a “best judgment” estimate and awarded Rs.2 crores plus
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interest to the Respondent. The Arbitral Tribunal reasoned that this amount
was fair given the evidence available.
9.2 The Appellant challenged the Arbitral Award, asserting that it was
granted on an ad hoc basis and lacked adequate evidence. However, the
learned Single Judge rejected this challenge, noting that the Arbitral
Tribunal had evidence to rely upon and had exercised reasonable judgment
within its mandate. As such, the learned Single Judge upheld the Arbitral
Tribunal’s decision, affirming that the Arbitral Award was based on a
reasonable estimation, and that the Respondent was entitled to a sum of Rs.2
crores adjustment with interest from the date of the Counter-Claim.
10. As stated above, the challenge in the two appeals by the Appellant is
seeking:
(i) To restore the Arbitral Award in its finding on Claim
Nos. 2 and 3, which was set aside by the learned Single Judge;
(ii) For the grant of Claim No.4, which has not been allowed
by either the Arbitral Tribunal or by the learned Single Judge;
and
(iii) To set aside the Arbitral Award on the Counter-Claims of
the Respondent.
CONTENTIONS OF THE APPELLANT
CLAIM NO.2
11. Learned Counsel for the Appellant contended that the payment of
Rs.32.62 crores was for the additional work on the Cuttack City pipeline.
The Arbitral Tribunal awarded Rs.7.93 crores after analysing evidence,
rejecting the Respondent’s assertion of a full and final settlement on the
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amount payable as per the MoM. The Arbitral Tribunal concluded that no
comprehensive agreement on the additional work’s scope or payment had
been reached and applied a reasonable methodology to quantify the amount.
The Appellant contends that the Impugned Judgement went beyond its
limited jurisdiction under Section 34 of the Arbitration Act as set by the
judgement in Associate Builders v. DDA1 by re-evaluating the evidence and
relying solely on MoM, and a letter dated 10.11.2015, without considering
other materials evaluated by the Arbitral Tribunal. In addition, the Appellant
contends that the Arbitral Tribunal’s methodology in estimating damages
was consistent with jurisprudence that allows tribunals to make reasonable
inferences when precise data is unavailable. In Mohd. Salamatullah & Ors.
v. State of A.P.2, the Supreme Court recognized the need for tribunals to rely
on rough but just calculations where exactitude is unattainable. It is thus
contended that the Impugned Judgment, so far that it sets aside Claim No.2,
suffers from an infirmity.
CLAIM NO. 3
12. The Appellant sought Rs.12.48 crores as interest on additional
financing costs incurred for the extra work. The Arbitral Tribunal awarded
Rs.7.49 crores, recognizing that financing costs were recoverable under the
BOOT Agreement. The Appellant contests that the learned Single Judge
misinterpreted this Arbitral Award, considering it as interest on a lump-sum
payment from the Respondent rather than as financing costs. It was
contended that the Arbitral Tribunal and the learned Single Judge wrongly
1
(2015) 3 SCC 49
2
AIR 1977 SC 1481
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found that a full and final settlement was reached between the parties when
in fact it was not. The learned Single Judge proceeded on the basis that
Arbitral Tribunal awarded interest on a lump-sum payment when, firstly,
there was no agreement covering the interest component, and secondly, the
claim of interest flowed from the terms of the contract which guaranteed a
rate of return to the Appellant. Thus, the finding is not in accordance with
law.
CLAIM NO. 4
13. This claim pertained to award of interest in the sum of Rs.143.83
crores which accrued during construction, on account of project delays. The
Arbitral Tribunal rejected this claim, citing the force majeure clause in the
BOOT Agreement, which precludes cost claims arising from force majeure
events. The Appellant argues that the Respondent never invoked the force
majeure clause, and its rejection of the Appellant’s attempt to invoke the
clause subsequently, precluded reliance on such clause. The Appellant
asserts that the Arbitral Tribunal’s reliance on the force majeure clause, in
the absence of its invocation by the Respondent, violates the contractual
requirement for strict compliance with invocation procedures. Reliance is
placed on the judgment in Energy Watchdog v. CERC & Ors.3, wherein the
Supreme Court held that when a contract explicitly provides a force majeure
clause, the parties must adhere to its invocation procedure, failing which
relief under the clause is unavailable. Similarly, in NTPC Ltd. v. Voith
Hydro Joint Venture4 it was emphasized that parties must formally invoke
3
(2017) 14 SCC 80
4
2019 SCC OnLine Del 9014
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force majeure clauses, and any subsequent reliance without such invocation
is legally impermissible. The Appellant contends that the Arbitral Tribunal’s
disregard of these principles constitutes patent illegality.
13.1 The Appellant further contended that even if the reason for the
extended period of construction was due to a force majeure event that was
provided for under Article 15.3(c) of the BOOT Agreement, the Respondent
had to invoke the force majeure clause to claim its benefit. However, it was
contended that neither the Arbitral Tribunal nor the learned Single Judge
considered the fact that the force majeure clause was not invoked by the
Respondent. It was averred that the terms of the BOOT Agreement were
binding and the Arbitral Tribunal and the learned Single Judge could not
have given them a go by. Thus, it is contended that these findings being
contrary to law are patently illegal.
14. Additionally, it was contended that the Arbitral Tribunal’s finding that
interest fell under individual costs, excluded by Article 15.3(c) of the BOOT
Agreement is flawed. The Appellant asserts that interest during construction
is part of the total project cost and not an individual expense, and only
individual expenses are exempt by force majeure. This interpretation aligns
with Halliburton Offshore Services Inc. v. Vedanta Ltd. & Anr.5, which
mandated a narrow interpretation of force majeure clauses and emphasized
the importance of compelling parties to adhere to contractual obligations.
COUNTER-CLAIM(S)
15. It was averred by the Appellant that the Arbitral Tribunal allowed this
5
2020 SCC OnLine Del 2068
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claim in the sum of Rs.2 crores, finding merit in the Respondent’s argument
for reduced maintenance costs due to the non-laying of a second pipeline.
However, the Arbitral Tribunal also found the Respondent’s cost estimates
unsubstantiated and acknowledged additional costs incurred by the
Appellant for laying a single pipeline over a riverbed. The Appellant
contends that these contradictory findings undermine the partial award to the
Respondent. The learned Single Judge upheld the Arbitral Tribunal’s
findings without addressing these inconsistencies, and as such the Impugned
Judgment cannot be sustained.
15.1 In support of its contentions, the Appellant has relied upon the
judgments of the Supreme Court in Associate Builders case, Energy
Watchdog case and judgments passed by this Court including NTPC Ltd.
case6 and Halliburton Offshore Services Inc. case.
CONTENTIONS OF THE RESPONDENT
CLAIM NO. 2
16. Learned Senior Counsel for the Respondent has contended that Claim
No. 2 was stated to be the balance payment for extra work executed by the
Appellant, while Claim No. 3 was towards interest for arranging additional
finances for such additional work, however the Respondent had contended
before the Arbitral Tribunal, that the issue of extra work was settled between
the parties in a sum of Rs.81,16,16,376/- by mutual discussion and
agreement. It was contended that a sum of Rs.60,39,35,869/- was paid by the
Respondent after the following deductions:
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Total value against additional cost Rs. 81,16,16,376/-
Deduction for de-scoping work Rs. 13,61,55,655/-
Deduction for unadjusted quantity of pipes Rs. 7,15,24,852/-
Total Rs. 60,39,35,869/-
16.1 The Respondent relied on the MoM in terms of which, after
deliberations, the parties had agreed to this payment. It was further stated
that thereafter, the Respondent obtained approval of the competent authority
on 07.11.2015 and the payment of Rs. 60,39,35,869/- was made as a one-
time payment to the Appellant which was duly accepted by the Appellant in
terms of its communication dated 10.11.2015.
16.2 It was contended that this payment was made only after the Appellant
consented and approved that there was clear and unequivocal agreement qua
the same. Although, the Appellant averred that the payment was accepted
under coercion or duress, this contention was rejected by the Arbitral
Tribunal and the Arbitral Tribunal has given a finding at paragraphs 3.33
3.35, that the plea of duress and undue influence is rejected. This finding has
become final as the same was not assailed by the Appellant and since this
finding of duress or coercion was not challenged by the Appellant, there was
no basis for the Arbitral Tribunal to award the payment of Rs.7.93 crores to
the Appellant under this claim. Thus, it is contended that the learned Single
Judge has correctly set aside this claim awarded to the Appellant.
6
(2019) SCC OnLine 90143
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CLAIM NO. 3
17. So far as concerns Claim No. 3, it is the contention of the Respondent
that once the parties had reached a final settlement and all amounts in terms
of such settlement were paid by the Respondent as a one-time payment,
which was accepted unconditionally, no additional payment towards interest
could be made.
17.1 It is contended that while the parties were negotiating the settlement,
there was no discussion on negotiation on interest payment. The only extra
payment that was to be made was of taxes. It is additionally stated that even
when the one-time settlement was accepted by the Appellant by signing of
the ‘service entry sheet’, the Arbitral Tribunal ignored the admitted
documents and has gone on to award interest on an ad hoc basis at 60% of
the amount claimed by the Appellant. The learned Single Judge for the
Respondent thus has rightly held that there was no action to carve out an
exception and award interest. The Respondent has laid emphasis on the fact
that the settlement was a lumpsum payment and instead of reduction in the
EMIs, were otherwise being paid to the Appellant.
18. Thus, it is contended that the learned Single Judge rightly set aside
Claim Nos. 2 and 3 of the Appellant and no interference in the Impugned
Judgment is warranted.
CLAIM NO. 4
19. The rejection of Claim No.4, amounting to Rs.143.83 crores for
interest costs arising from an extended construction period was correctly
decided by the Arbitral Tribunal and upheld by the learned Single Judge.
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Clause 15.3 of the BOOT Agreement, which governs force majeure events
specifically states that upon the occurrence of a force majeure event after
financial closure and before the commercial operation date, each party shall
bear its respective costs without requiring the other party to reimburse costs
arising from such events.
19.1 It was contended that the Appellant, by its own admission in a letter
dated 03.08.2011, identified the delay as a political force majeure event
under Clause 15.1.3(iv) of the BOOT Agreement. In response, the
Respondent clarified through its letter dated 26.08.2011, that the event fell
within Clause 15.3(c), precluding any cost claims by either party. The
Arbitral Tribunal relied on this correspondence, as well as the terms of the
BOOT Agreement to conclude that the delay was covered by a force
majeure event, making Appellant ineligible for compensation. In addition,
the Arbitral Tribunal noted that the Appellant failed to provide substantial
evidence attributing the delay to the Respondent. This finding was upheld by
the learned Single Judge, and it was also observed that the Appellant had not
raised any challenge on the reason for the delay as was determined by the
Arbitral Tribunal. Thus, the Arbitral Tribunal correctly dismissed Claim No.
4 of the Appellant, which was upheld by the learned Single Judge.
20. In addition, it is averred that the only submission sought to be made
by the Appellant with regard to Claim No. 4 before this Court is that the
Respondent never invoked the force majeure clause. The Respondent refuted
the Appellant’s argument that the force majeure clause was not invoked and
contended that there is no contractual stipulation requiring the invocation of
Clause 15.3 for it to apply. The Respondent distinguished the present case
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from NTPC Ltd case, where the contract explicitly required a party to notify
the other in writing to claim force majeure. Emphasis was laid on Clause
15.3 of the BOOT Agreement to contend that the said clause automatically
applies to force majeure events during the relevant period and explicitly
stipulates that costs must be borne by the respective parties.
COUNTER-CLAIM(S)
21. The Respondent argues that its Counter-Claims, were based on a
reduction in the project’s scope due to the laying of a single pipeline instead
of two. The Respondent claimed Rs.3.93 crores, asserting that the reduced
scope led to a corresponding savings in maintenance and operational costs,
warranting a proportional reduction in each equated monthly installments
(EMIs) to be paid to the Appellant by Rs.1,31,127/-. The Arbitral Tribunal
partially allowed the Counter-Claim and awarded Rs.2 crores instead of Rs.
3.93 crores.
21.1 In this regard, the Respondent avers that the learned Single Judge
correctly found no fault with findings of the Arbitral Tribunal as there was
evidence before it for quantification of the claim to make a best judgment
analysis. The Court in exercise of its limited powers under Section 34 of the
Arbitration Act will not interfere with such a finding unless they are
demonstrably perverse or in violation of public policy. It was contended that
the learned Single Judge upheld the Arbitral Award giving a finding that the
Arbitral Tribunal has made a best judgment analysis and that the Court
would not interfere with the same. Thus, this finding of the Arbitral Tribunal
and the learned Single Judge is liable to be upheld.
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ANALYSIS AND FINDINGS
22. As stated above, the challenge in both these Appeals is by the
Appellant and no appeal under the provisions of Section 37 of the
Arbitration Act has been filed by the Respondent.
CLAIM NOS. 2 AND 3
23. With a view to examine the challenge of the parties and for ease of
reference, this Court has created a tabular analysis of the claims/counter-
claims in issue. Claims No.2 and 3 were dealt in the following manner:
S.No. Claim Arbitral Tribunal Single Judge
1. Claim No.2 The Award of Rs.7.93 crores The award on
The payment for extra work for de-scoped work with this claim was
done for laying of Cuttack simple interest at the rate of set aside.
City pipeline - a sum of 12% per annum from
Rs.32.62 crores was sought 01.01.2016 onwards till
for by the Appellant. payment.
2. Claim No.3 The Award of Rs.7.49 crores The award on
Interest for additional with simple interest at the rate this claim was
finances arranged for of 12% per annum from set aside.
carrying out extra work of 01.01.2016 onwards till
Cuttack City pipeline of payment.
Rs.12,47,62,438/-.
23.1 The Appellant has contended that by the Impugned Judgment, the
learned Single Judge exceeded his jurisdiction under Section 34 of the
Arbitration Act. The Arbitral Tribunal had after examining the evidence
awarded a sum of Rs.7.93 crores, which was only a partial award, however,
the learned Single Judge re-evaluated the evidence to set aside the Arbitral
Award. Thus, the Impugned Judgement cannot be sustained with respect to
Claim No.2.
24. The Arbitral Award of Rs.7.49 crores by the Arbitral Tribunal to the
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Appellant was set aside by the learned Single Judge based on the fact that a
comprehensive settlement had been reached between the parties and no
additional sum could be awarded to the Appellant.
24.1 The Appellant has claimed that the learned Single Judge has wrongly
interpreted the amounts awarded to the Appellant. It is contended by the
Appellant that the costs of extra work would naturally include interest
payable to the banks/lenders for additional amounts borrowed to meet the
expenditure of the extra work (Claim No. 3). Thus, the Appellant would be
entitled to the interest cost for arranging these finances as well.
24.2 The Respondent, on the other hand, has contended that the amount of
Rs.60.39 crores was a total amount negotiated and paid to the Appellant.
The Respondent also contended that this amount of Rs.60.39 crores was paid
to the Appellant as a one-time lumpsum payment and not in instalments to
defray all expenses and costs of the Appellant.
24.3 The learned Single Judge found that once a settlement had been
reached amongst the parties, the question of making additional payment to
the Appellant did not arise.
25. The record reflects that the claim of de-scoped work and the claim for
interest on additional finances hinges on the settlement reached between the
Appellant and the Respondent on 12.02.2015, the MoM. The learned Single
Judge analyzed the MoM as well as the subsequent communications entered
into between the parties including the communication dated 07.11.2015 sent
by the Respondent to the Appellant and its acknowledgment by the
Appellant, by a letter dated 10.11.2015. The learned Single Judge found that
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the Arbitral Tribunal had wrongly rejected the contention of the Respondent
that the MoM did not record a final settlement of all claims between the
parties. It is apposite to extract the relevant part of the Impugned Judgment
which sets out the discussion thereon:
“22. On the issue of whether the respondent was estopped from raising its
claim for de-scoped work, and whether there was a full and final settlement
of the said issue between the parties and as recorded in the Minutes of
Meeting dated 12.02.2015, it would be necessary to first quote the said
Minutes of Meeting dated 12.02.2015 on this aspect. The relevant extract
from the Minutes of Meeting is as under:-
“2. Descoping work between Ch. 0 to 7 Km During the meeting on
dtd 10th/11th Dec’ 14, detailed estimation/calculation was shown to
M/s. IPRWL and it was explained that total deduction should be Rs.
21.88Cr. (excluding tax & duties) with return of unused pipe. M/s.
IPRWL did not agree and expressed various rate considered for de-
scoping by IOCL is on higher side.
M/s. IPRWL has expressed that they had to incur higher cost
towards encasing of 1300 mm/dia pipeline below railway line w.r.t.
pushing cost which is not claimed in the additional work and hence
cost of pushing of only 1100mm Dia pipe to be deducted instead of
both. After review of the matter, above point was found reasonable
and hence IOCL has agreed to consider cost of pushing of 1100mm
Dia pipe out of two below the railway line for which an amount of Rs.
36.22 Lakh would be reduced from de-scoping workM/s. IPRWL further informed that cost deduction for cleaning flushing
and cleaning of debris item under item under miscellaneous work for
parallel line which was in original alignment is unjustified. They
informed that cleaning, flushing job could have been carried out
during the flushing of whole system at a time without any extra cost.
Similarly no extra cost would have been involved for debris removal
as two pipe lines were to be put in the same trench. Total resources
mobilization for cleaning of debris for the area would have been the
same. They requested not to add these items in the deduction part.
After review of the matter, above point was found reasonable and
hence IOCL has agreed to reduce the amount of Rs. 7,21,884/-on
account of Cleaning, flushing and cleaning of debris item under
miscellaneous work from descoping work.
During the detailed deliberation in the meeting on 12th Feb 15, M/s.
IPRWL informed that the rate considered for recovery of morrum &
sand against SI No. 1 of relaying of road is on higher side. It wasSignature Not Verified
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also informed that the rate paid to the contractor for similar works in
other locations is much less as morrum & sand was readily available
in nearby areas. Therefore, CPWD SOR item no. 16.74.1 may be
considered for morrum. M/s. IPRWL mentioned that during making
payment for sand filling item ICOL has considered average rate paid
to the various sub-contractors of M/s. IPRWL which is coming to
Rs. 267/m³. But during deduction, IOCL has considered the rate of
same sand filing item as Rs. 749.30/m³. They requested IOCL to
consider same rate for both payment to IPRWL and deduction as
well. IOCL reviewed the matter as above and it was felt that point
raised by M/s. IPRWL is logical. The item rate for morrum as
requested by M/s. IPRWL is nearly similar item and could be
considered. Hence it was agreed by IOCL to consider the rate of
Rs155.85/m² for 225mm thick in place of Rs. 904.42/m³ for morrum
and Rs267/m³ for sand filling.”
23. A reading of the above extracts would clearly show that various
aspects of the de-scoping work were discussed between the parties. The
initial part states that the petitioner was claiming a total deduction of
Rs.21.88 crores, which was not agreed to by the respondent. The parties
thereafter discussed various objections of the respondent and an amicable
settlement was arrived at between the parties on these aspects. The same is
also evident from the subsequent portion of the Minutes of Meeting,
which is reproduced hereinunder:-
“After making all modification, following values are extorted from
the detailed calculation sheet which is enclosed here with.
A. Total value against additional Cost: 81,16,16,376/-
B. Deduction for de-scoping work :Rs. 13,61,55,655/-.
C. Deduction for unadjusted quantity of pipe on reconciliation : Rs.
7,15,24,852/-.
D. Net amount payable to M/s. IPRWL (A-B-C) : Rs. 60,39,35,869/-.
Moreover, M/s. IPRWL has to return 3535 mtr. of 1100 dia pipe and
230 mtr 1300 dia pipe. If any, shortfall during handover/takeover,
then same quantity will be recovered @ 29519.13 mtr separately.
All above, calculations were made without considering any tax
component. However, IPRWL will submit further documents to
IOCL for considering tax implication their additional cost before
finalizing additional EMI.
xxxxxx xxxxxx xxxxxx
Summary sheet for extra work in Cuttack city area as per the
negotiation on 12.02.2015Signature Not Verified
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SI. Brief Order of Amount Amount Revised Remark
No. Particulars magnitude claimed by Worked out amount
of the work cost M/s IPRWL by IOCL mutually
undertaken indicated agreed
while taking
in-principle
approval for
extra job
1. Additional 75,00,00,000 91,46,02,093 81,16,16,376 81,16,16,76 Total Amt. is
work inclusive of
piling work,
laying work
& addl.
Piling work
2. Deduction 11,68,00,000 0 21,88,13,477 13,61,55,655
for
descoping
work
3. Net amount ₹63.32 Cr 91,46,02,093 59,28,02,899 67,54,60,721
of (Say 63.50
additional Cr.)
work
4. Deduction 7,15,24,852
for
unadjusted
quantity of
pipe on re-
onciliation
Total 63,32,00,000 91,46,02,093 59,28,02,899 60,39,35,869 **
(excluding
Tax)
24. The above extracts of the Minutes of Meeting dated 12.02.2015 leaves
no iota of doubt that the parties have agreed and settled on their inter se
disputes on the issue of the effect of the de-scoping of work.”
[Emphasis is ours]
26. This Court has examined the MoM which took place on 12.02.2015
between the Appellant and the Respondent. The MoM set out a discussion
between the parties with respect to the additional work of “pushing of 1100
mm dia pipe out of two below the railway line”, for which an amount of
Rs.36.22 lakhs would be reduced from the value of the de-scoping work. It
further records the fact that the Respondent agreed to reduce an amount of
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Rs.7,21,884/- on account of cleaning, flushing and clearing of debris of de-
scoped work. It further sets out that the Appellant and the Respondent
discussed the issue qua the rate of sand filling item, and after discussions,
the Respondent agreed to consider a revised rate for “morrum and for sand
filling”. The discussions which were held between the representatives of the
Appellant and the Respondent as recorded in the MoM are detailed and
under three heads, i.e.,
(i) Additional work between Ch. 0 to 7 km;
(ii) Descoped work between Ch. 0 to 7 km; and
(iii) Reconciliation of pipe.
26.1 The MoM also sets out that there were previous meetings held on
10/11.12.2014 and 5/6.01.2015 and that the MoM dated 12.02.2015 was a
culmination of these discussions. The minutes of meeting dated
10/11.12.2014 have not been filed before this Court but were filed before the
learned Single Judge. These minutes also contain the same three headings
i.e., (i) Additional work between Ch. 0 to 7 km; (ii) Descoping work
between Ch. 0 to 7 km; and (iii) Reconciliation of pipe. It, however, records
the fact that the Appellant had informed the Respondent that they would
discuss these issues with their superiors and revert. The relevant extract of
minutes of meeting dated 10/11.12.2014 is below:
“After detailed discussion M/s IPRWL informed that they will like to put up
the issue as stated above to their higher authorities and shall revert by
26.12.2024.”
Thus, clearly the parties were in discussions over several months.
26.2 The MoM also include a summary sheet for the extra work as per the
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negotiations of 12.02.2015. The summary sheet contains a detailed
calculation and several issues of the de-scoped work including pipe
alignment, methodology, piling job, above ground pipeline work, sand
filling for pipeline, etc. [hereinafter referred to as “Summary Sheet”]. The
summary of the extra work is tabulated, which sets out that the amount as
claimed by the Appellant was Rs.91,46,02,093/- while the amount worked
out by the Respondent was Rs.59,28,02,899/-. It also sets out that the
mutually agreed revised amount was Rs.60,39,35,869/-. The Summary Sheet
table also contains a remark that the total amount is inclusive of piling work,
laying work and additional piling work and that the Appellant has to return
certain pipes as well. The tabular Summary Sheet table is extracted below:
“Summary Sheet for extra work in Cuttack city area as per the negotiation
on 12.02.2015SI. Brief Order of Amount Amount Revised Remark
No. Particulars magnitude claimed by Worked out amount
of the work cost M/s IPRWL by IOCL mutually
undertaken indicated agreed
while taking
in-principle
approval for
extra job
1. Additional 75,00,00,000 91,46,02,093 81,16,16,376 81,16,16,76 Total Amt. is
work inclusive of
piling work,
laying work
& addl.
Piling
work
2. Deduction 11,68,00,000 0 21,88,13,477 13,61,55,655
for
descoping
work
3. Net amount ₹63.32 Cr 91,46,02,093 59,28,02,899 67,54,60,721
of (Sa 63.50
additional Cr.)
workSignature Not Verified
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4. Deduction 7,15,24,852
for
unadjusted
quantity of
pipe on re-
conciliation
Total 63,32,00,000 91,46,02,093 59,28,02,899 60,39,35,869 **
(excluding
Tax)
27. The MoM was also followed by another meeting/negotiation held on
01.07.2015. These minutes were however for finalization qua the payment
of additional EMI on account of the de-scoped work. In these minutes, the
Appellant has stated that it has capitalized the cost of the project and already
submitted financial closure documents for the first phase and the second
phase. The Appellant has also informed the Respondent that they agree that
although the Internal Rate of Return (IRR) is more than 15% but they have
agreed to the same being capped at 14.40%. The Respondent, however,
stated that they would have to apply for a reduction in interest rate to 12%.
The Appellant then informed the Respondent that they would revert on the
same. The minutes of meeting of 01.07.2015 evidencing this discussion is
extracted below:
“A discussion/negotiation session was organized with M/s IPRWL on
01.07.2015 for finalization of basis of calculation for additional
EMI due to change in alignment/methodology for laying of pipeline
in Cuttack city Area.
1. IPRWL informed that they have capitalized the project at a cost of
Rs. 625 Cr.
2. IPRWL have already submitted Financial Closure documents at
Paradip site. Further, IPRWL has agreed to provide the funding
documents for 1st phase (Boot 4) as well 2nd phase (additional job) of
funding.
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3. IPRWL informed that their IRR is more than 15% but they agree
to same cost of capital to 14.40% calculated based on EMI quote to
capitalized cost of Rs.625 Cr.
4. IOCL informed to consider reduction in interest rate of 12%
based on similar work on BOOT basis at Paradip.
5. IPRWL informed that they will have to place for reduction in
interest rate to 12% vis a vis the current capital recovery rate of
14.40% to senior management for decision and informed that it
would revert on the same.”
[Emphasis is ours]
28. This is followed by the communication dated 07.11.2015 by the
Respondent to the Appellant which sets out that a one-time down payment
of Rs.60.39 crores has been approved instead of payment by additional
EMIs, and that this payment can be released after re-conciliation of material.
29. In response, on 10.11.2015, a letter was addressed by the Appellant to
the Respondent requesting for the release of the sanctioned amount. The
subject line of the letter stated that it is for release of payment towards
‘additional cost due’ and thanks the Respondent for the approval for the one
time down payment of Rs.60.35 crores towards the ‘additional cost’ due to
change in alignment for laying pipeline in Cuttack city’. It also requests
for release of the amounts sanctioned for the additional costs, which is
pending for long. The relevant extract of letter dated 10.11.2015 is below:
“Dear Sir,
Sub: TRANSPORTATION OF WATER FROM MAHANADI RIVER AT
CUTTACK TO PARADIP FOR PARADIP REFINERY PROJECT ON
BOOT BASIS – Release of payment towards ‘additional cost’ due to
change in alignment for laying pipeline in Cuttack city-reg.
Ref 1. FoA dated 25/09/2009 and BOOT Agreement dated 29/01/2010
2. Your tetter ref. PDRP/ BOOT – IV/Gen. Corr./ 2015-16/1 dated
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07/11/2015We thank you for confirmation on approval of one time down payment of
Rs.60.39 Cr towards the ‘Additional cost’ due to change in alignment for
laying pipeline in Cuttack city.
As regards hand over of pipe, we would like to draw your kind attention to a
discussion at Intake Site in May 2015, during visit of ED (1/C), EIP (CG)
and your goodselves, wherein on a specific query, we were advised not to
shift the pipes to Paradip as IOCL would dispose/resell the pipes in as is
where is basis at the existing locations near Intake premises and transport
of same to Paradip is not called for.
Under the circumstances, we request you to release the sanctioned amount
on the Additional costs which is pending for quite some time now.
However, the pipe details and documents sought by you shall be sent in a
couple of days’ time for formalizing the handover of pipes.”
[Emphasis is ours]
30. The learned Single Judge disagreed with the findings of the Arbitral
Tribunal that the MoM did not record a final settlement of the claims
between the parties. It was held by the learned Single Judge that in
paragraph 3.23 of the Arbitral Award, a finding is recorded that the amount
of Rs. 60.39 crores have been arrived at after joint calculations, cannot be
accepted while in the later part of the Arbitral Award, in paragraph 3.26 to
3.30, a contrary finding has been given by the Arbitral Tribunal that the
Appellant accepted the modified calculations and the only issue raised was
regarding the interest.
30.1 The Arbitral Tribunal has held that what has been agreed in the MoM,
was with regard to the quantum of additional costs, which was accepted by
the Appellant. It was held that the Claimant (Appellant) unequivocally
accepted the offer of the Respondent and waived its right to claim any
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further amount on this account including in respect of the costs of Rs. 81.16
crores. The Arbitral Award further goes on to hold that with regard to the
de-scoping, this cannot be said to be the quantum proposed by the
Respondent. The Arbitral Award has further held that accepting the payment
of Rs. 60.93 crores does not tantamount to an acceptance that nothing
further was due and that the letter dated 10.11.2015 cannot be considered to
be a relinquishment of the claims of the Appellant. This finding was set
aside by the learned Single Judge.
31. The Appellant has assailed the finding of the learned Single Judge and
has contended that the Arbitral Tribunal proceeded in its analysis on a
wholistic appreciation of all facts and documents while the learned Single
Judge made a decision based only on the MoM and the letter dated
10.11.2015. The Appellant has also stated that there was no settlement on
the issue of Rs. 81.16 crores or the quantum of de-scoped work or the issue
of interest on additional financing. It is further stated that even if this is to be
considered as settlement, the same is vitiated for being under economic
duress. The Respondent, on the other hand, has relied upon the MoM and its
Summary Sheet and the communications thereafter including letter dated
10.11.2015. The Respondent has further contended that the service entry
sheet was signed by the Appellant on 17.12.2015 affirming confirmation of
payment of the above said amount, less Rs.4,63,38,085/- , to be deducted on
the return of unused pipes. The Respondent has stated that the plea of partial
settlement raised by the Appellant before this Court was not raised before
the learned Single Judge in its Petition under Section 34 of the Arbitration
Act where the only plea raised was of acceptance under economic duress.
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32. An examination of the documents, more specifically the Summary
Sheet, reflects the calculation that has been explained by the Respondent.
The initial amount claimed by the Appellant was Rs. 91.46 crores
(approximately) while the amount mutually agreed was Rs. 81.16 crores.
The Respondent worked out a deduction for de-scoping work at Rs. 21.88
crores (approximately) but the revised amount mutually agreed was Rs.
13.61 crores (approximately). Thus, the amount as claimed was mutually
agreed to be revised as Rs. 67,54,60,721/- and after deduction on pipe
reconciliation of Rs. 7,15,24,852/-, the value of the mutually agreed amount
was Rs. 60,39,35,869/- (subject to hand over of the pipes).
32.1 The MoM also discusses detailed calculations in relation to the de-
scoping, additional work, as well as reconciliation of the quantity of pipe
and states that after “detailed deliberation calculations” the deduction sheet
was modified. The tabular chart reflecting the detailed calculation and
deductions is set out below:
Deduction Amt
Sl. No. Description Original Revised Remarks
Value Value
1. 225 mm thick Morrum 51,05,982.25 39,10,510.28 Rate Changed
(Annexure – 1 of deduction Rs.904.42/m2 to
sheet Sl. no-1, Relaying of Rs. 155.85/m2
Road)
2. 225 mm thick sand filling 42,30,238.71 15,07,371.86 Rate Changed
(Annexure-1 of deduction Rs.749.30/m2 to
sheet, Sl no-1, Relaying of Rs.267/ m2
Road)
3. 225 mm thick Morrum 51,05,982.25 39,10,510.28 Rate Changed
(Annexure-1 of deduction Rs.904.42/m2 to
sheet, Sl no-1, Relaying of Rs.155.85/ m2
Road)
4. Pushing of pipe below 70,72,500 34,50,000 Rs.36,22,500/-
Railway line (Annexure-1 of reduced below by Signature Not Verified Digitally Signed By:HONEY ARORA Signing Date:18.04.2025 FAO(OS) (COMM) 164/2023 & connected Page 29 of 41 13:56:26 deduction sheet, Sl no-Z) line 5. De-scoping laying works of 12,41,49,406 4,85,36,019 Qty modified as 1100 dia pipe (Annexure-1 per single line of deduction sheet, Sl no-4) diagram and material cost shown separately in Sl no-8 6. De-scoping laying works of 2,13,98,827 2,37,04,088 Qty modified as 100 dia pipe (Annexure-1 of per single line deduction sheet, Sl no-5) diagram 7. Miscellaneous work 60,57,184 54,43,800 [9,04,62,299/- ...handwritten...] Rs.7,21,8841 reduced 8. Deduction for unadjusted __ 7,15,24,851 pipe quantify on reconciliation. Total 17,31,20,120 16,19,87,150
33. A review of the Arbitral Award shows that the Arbitral Tribunal has
given a categorical finding that there was no duress or coercion in paragraph
3.35 of the Arbitral Award. However, the Arbitral Tribunal goes on to hold
that the said amount was only towards extra work done and not towards the
de-scoped work. The communications prior to and subsequently entered
between the parties which are adverted to above, including the
acceptance/thank you letter of 10.11.2015 which in its subject line itself
states that it is for the release of payment towards additional costs due to
change in alignment, also set out that the payment is towards the various
claims that are due towards the change in alignment – which is the de-
scoped work.
34. Even, so far as concerns Claim No. 3, the fact that there were various
discussions between the parties on pending disputes during the period from
2014 onwards which culminated in the MoM and the acceptance of payment
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on 10.11.2015 by the Appellant, shows that this claim was also an
afterthought. The Appellant has not sent any communication qua additional
financing costs during this period or raised an issue qua the same. The
Respondent has also contended that it was at the request of the Appellant
that the payment was made to the Appellant as one-time lumpsum amount
and not as it would have been otherwise done, in equated instalments, since
all claims were to be settled in terms of the MoM. This is reflected in the
communication sent by the Respondent to the Appellant on 07.11.2015 as
well, when it has been held that a one-time down payment has been
approved by the competent authority for payment to be made to the
Appellant instead of a payment in monthly equated instalments.
35. The record reflects that prior to MoM, there were several meetings
inter se the parties, which included detailed discussions on 10.12.2014 and
11.12.2014. The minutes of both these meetings form part of the record.
These minutes also reflect that they are for negotiation/finalisation in view
of the changes in the Project on account of the de-scoped work. The
meetings of 10.12.2014 and 11.12.2014 was followed by a meeting of
05.01.2015 and 06.01.2015 (which are not available on record), however
what is available are the minutes of the meeting held on 12.02.2015 (MoM)
and the subsequent meeting on 01.07.2015.
36. Even the MoM coupled with the annexed Summary Sheet of these
minutes reflect the same. It is not the case of the Appellant that the
Appellant was not aware of these minutes or the Summary Sheet, yet
between February, 2015 and November, 2015, there is no protest lodged by
the Appellant against the calculations or otherwise. Thus, the contentions of
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the Appellant seem to be nothing but an afterthought. The learned Single
Judge had set aside these findings of the Arbitral Tribunal as being patently
illegal and contrary to the documents filed. We are, therefore, in agreement
with the findings of the learned Single Judge.
CLAIM NO. 4
37. A tabular analysis of the claim No.4 is reproduced below:
S.No. Claim Arbitral Tribunal Single Judge
1. Claim No.4 Claim for interest occasioned The finding of
Claim for interest due to extended construction the learned
occasioned due to extended period amounting to Arbitral
construction period Rs.143,83,00,000/- was found Tribunal was not
amounting to unsustainable and was thus interfered.
Rs.143,83,00,000/-. rejected.
38. The Appellant’s contention qua Claim No. 4 for interest during
construction period in the sum of Rs. 143.83 crores was rejected both by the
Arbitral Tribunal and by the learned Single Judge. The rejection was based
on an interpretation of the force majeure clause in the BOOT Agreement.
The Arbitral Tribunal found that the force majeure clause exempted political
force majeure events which finding was upheld by the learned Single Judge.
Clause 15.1 which defines force majeure event and Clause 15.3 which sets
out the effect of a force majeure event which occurs after financial closure
and before the completion stage, were reproduced and discussed in the
Impugned Judgment by the learned Single Judge.
39. It has been contended by the Appellant that neither the Arbitral
Tribunal nor the learned Single Judge considered the fact that there was no
invocation of force majeure clause by the Respondent and that the plea of
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force majeure was taken ex-post facto without any basis. It was further
averred that disallowing of its claim due to the existence of the force
majeure clause, on the basis of Clause 15.1.3 of the BOOT Agreement was
incorrect since the invocation of this clause was a sine qua non for Article
15 of the BOOT Agreement.
40. The record reflects that the Appellant had by letter dated 03.08.2011
has itself stated that a political force majeure event falling under Clause
15.1.3(iv) of the Agreement has occurred. The relevant extract of this letter
is below:
“Scope Complex, Core-2,
2nd Floor, Room No. 239,
7 Institutional Area
Lodhi Road, New Delhi – 110003.
Kind Attention: MR. S K Ambastha, DGM (PJ- PDRP)
Subject: Transportation of water from Mahanadi River at Cuttack to
Paradip for Paradip Refinery Project of BOOT basis – Force Majeure event
at Intake facilities of the project – Reg. [in supersession of letter No.
IPRWL/IOCL/078 dated 2nd August, 2011.]Ref: i. Contract No. PJ/CC/WC-BOOT/PDRP/2008-2009/156/43 of
2009-2010.
ii. Order of Hon’ble High Court of Orissa W.P.(C) No.
20283/2011 issued on July 29th July 2011.
iii. Email from Mr. N.K.M Mishra to Mr. R.R. Kamat dated
July 30, 2011.
iv. Email from Mr. V. Prabhakar Rao addressed to Mr. S.K.
Ambastha dated 30.07.2011.
Dear Sir,
We refer to the Hon’ble Orissa High Court’s order mentioned above
granting an interim stay on the construction activities at Hadia Patha area
(intake site of the project) at Cuttack. The Hon’ble Court has directed the
parties to the case to submit a report before August 12. 2011. In this regard
we place on record the following:
Signature Not Verified
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By:HONEY ARORA
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1. The order dated July 29,2011 impedes us from undertaking/
continuing any sort of construction works at the Intake site at
Cuttack and thereby restraining the performance obligations of the
BOOT contractor. Pursuant to being aware of the order, we have
stopped all activities at the Intake Site.
2. The order by the Hon’ble Orissa High Court is a political force
majeure event falling under the Clause 15.1.3(iv) of the BOOT
Agreement which is reproduced below:
“Any judgment or order of competent jurisdictions of statutory
authority in India or any order, rule, promulgation, ordinance
of any State government, Central Government of statutory
bodies against the BOOT Contractor in any proceedings for
reasons other than failure of BOOT Contractor to comply with
any applicable law or applicable permits or on account of
breach thereof, or any contract, or enforcement of agreement or
exercise of any of its right under the agreement of IOCL.”
3. In terms of the Clause 15.2 of the BOOT Agreement this notice of the
Force Majeure Event is notified by the BOOT contractor to IOCL. The
BOOT contractor is the affected party.
4. The stoppage of work is not clue to any reason attributable to the BOOT
Contractor and is beyond the reasonable control of the BOOT Contractor
and solely due to Force Majeure. In addition to the enforced stoppage of
the construction work at the site it also causes:
a. An escalation in Project cost in terms of loss in mobilized man-
power. machinery and increased Interest during construction.
b. Loss of time and financial expenditure to demobilization of
manpower, material and machinery at the Intake site.
c. Additional time and cost to be incurred to mobilize the resources to
resume work, pursuant to any further Orders passed by the Hon’ble
High Court.
d. Time overrun to the extent of the Force Majeure delay including the
additional time incurred for demobilizing and re-mobilizing the
resources.
5. The actual extent of loss in terms of time and cost to be incurred by the
BOOT Contractor will be capable of being fully assessed only on the
resolution of the above force majeure event.
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6. Hence, we request IOCL to take on record this notice of Force Majeure
event and resolve this issue at the earliest and absolve the BOOT contractor
of any implications arising out of the above stated force majeure event.
7. As stated above. pursuant to the order of the Hon’ble High Court the
work at intake has been stopped and the work would be resumed soon
after we receive through IOCL, the order of the High Court vacating the
stay.
Thanking you,
Yours sincerely,
For IL &FS Paradip Refinery Water Limited
Sd/-…”
[Emphasis supplied]
41. The Respondent in reply to this letter on 26.08.2011 clarified that in
accordance with Clause 15.3(c) of the BOOT Agreement, the parties have to
bear their respective costs. The relevant extract of the letter dated
26.08.2011 sent by the Respondent to the Appellant is set out below:
“In case the referred event is considered as “Force Majeure”, IPRWL is
requested to take note of that the said event occurred after Financial
Closure & before Commercial Operation Date (COD). At this stage the
effect of the Force Majeure event shall be dealt in accordance with Clause
15.3(c) of Conditions of Contract of BOOT Agreement (RFP. Volume-III)
i.e., the parties shall bear their respective costs and no party shall be
required to pay to the other party any costs arising out of such Force
Majeure Event.”
[Emphasis supplied]
42. The contention of the Appellant is that there was no stipulation in the
BOOT Agreement for invocation of such clause. The Appellant has relied
on notification dated 19.02.2020 issued by the Ministry of Finance in this
regard which states that there must be specific information of the invocation
of the force majeure clause before any benefit is taken. Given the date of this
notification, it is clear that the same was issued just after the announcement
of Covid-19 Pandemic. The BOOT Agreement and disputes inter se the
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parties were much prior to the Covid-19 Pandemic and reliance on this
notification by the Appellant is misplaced.
42.1 The judgment in the NTPC case and the Energy Watchdog case are
also not applicable to the facts in the present case. The Court in NTPC case
was dealing with a contract that clearly stipulated that any party seeking to
invoke the Force Majeure clause must give notice thereof, which was not
done by the party involved therein. Whereas, the Court in Energy Watchdog
case discussed the nature of such event and whether it would fall under the
ambit of the Force Majeure, and especially within the contours of the term
“change in law”.
42.2 The Arbitral Tribunal based on its examination of the Clauses of the
Contract as well as on the evidence found that this claim was not merited.
The learned Single Judge did not interfere with this finding. In view of our
discussion, we find no reason to interdict with the concurrent findings of the
Arbitral Tribunal and the learned Single Judge.
COUNTER CLAIM NOS. 1 TO 3
43. The Respondent had made three counter claims:
(i) Rs.3,93,38,124/- towards excess amount paid to the
Appellant;
(ii) In the alternate for refund of excess amount at the rate of
Rs.1,31,127/- per month which is being paid by the
Respondent from June, 2014 onwards till the date of passing
of the Arbitral Award; and
(iii) Interest @ 18% on the excess amount paid from June, 2014
till the passing of the Arbitral Award.
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43.1 The Arbitral Tribunal after examining the contentions of the parties,
awarded a sum of Rs. 2 crores to the Respondent. The learned Single Judge
examined the Arbitral Award and found that it was based on a reasonable
estimate and a best judgment analysis of the claim of the Respondent, and
upheld the award of Rs. 2 crores to the Respondent. Interest on this award of
Rs. 2 crores was also granted from the date of filing of the Counter-Claim
i.e., 01.10.2016 till the date of the Arbitral Award. The learned Single Judge
also examined upheld this finding of the Arbitral Tribunal. The following
extract is relevant:
“79. The relevant finding of the learned Arbitral Tribunal on the counter-
claim is reproduced hereinbelow:
“13.8 It is only legitimate that when a part of the work has not been
executed and the cost of that work has been included in the total cost
and the EMIs were calculated accordingly, the excess amount
attributable to the non-executed item shall be reduced from the EMIs.
In fact, the Claimant does not dispute the power to reduce the EMI
amount so as to address an issue that had already arisen during the
contract period.
13.9 The next question is about the quantum of reduction i.e. whether
the Respondent is justified in calculating the monthly maintenance
cost in the manner in which it did and fixing the amount deducible at
Rs.1,31,127/- per month.
13.10 It seems to us, on a perusal of the data/calculations given by the
Respondent in the light of objections raised by the Claimant, the
maintenance cost of pipeline arrived at by the Respondent is on the
higher side. No endeavour has been made to substantiate the
relevancy of some of the components set out in para 8 and the
appropriate percentages to be applied. Further, the contention of the
Claimant that it had to incur additional maintenance cost for laying
single pipeline over the river bed for a stretch of 3 KM instead of
laying the same underground as originally contemplated has some
merit.
13.11 Taking an overall picture and on due consideration of the
respective contentions, the Arbitral Tribunal is of the view that it is
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(Counterclaimant) on this account. The said amount of Rs.2 crores
plus interest as specified below can be deducted from the monthly
EMIs payable in future. The Arbitral Tribunal is inclined to award
interest on the said amount of Rs. 2 Crores only from the date of
filing Counter-claim i.e. from 01.10.2016 till the date of this Award
in view of the long silence on the part of the Respondent to pursue the
claim after a certain stage, may be, under the bonafide impression
that the one-time down payment offered would take care of
everything.”
80. A reading of the above would show that the learned Arbitral Tribunal
has first held that due to the change of scope of work, the petitioner would
be entitled to a reduction of the EMI. No fault can be found in the said
finding of the learned Arbitral Tribunal. The learned Arbitral Tribunal
thereafter considered the quantification of the claim of the petitioner and
found that claim made by the petitioner was on the higher side and the
petitioner had failed to substantiate the relevance of some of the
components of its claims. Though, the learned Arbitral Tribunal does not
spell out these components, it had certain evidence before it for the
quantification of the claim. As held hereinabove, if there is some evidence
before the learned Arbitral Tribunal to make a best judgment analysis,
this Court in exercise of its limited powers under Section 34 of the Act will
not interfere with the same.
81. Accordingly, I find no merit in the challenge of the respondent to the
award of the counter-claim in favour of the petitioner.”
[Emphasis supplied]
44. The Appellant has contended that on the one hand the Arbitral
Tribunal observed that a part of the work has not been executed and the cost
attributed to non-executed items shall be reduced, and recorded that the
Counter-Claims by the Respondent are on higher side and no endeavour has
been made to substantiate the components forming the Counter-Claims and
on the other hand, the Arbitral Tribunal proceeded to state that it is
reasonable to award an amount of Rs. 2 crores to the Respondent. Thus, it is
contended that this is a contradictory stand which has been upheld by the
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learned Single Judge.
44.1 The Respondent in response has stated that the Counter-Claims were
raised based on the fact that due to laying of a single pipeline instead of two
pipelines for a length of 7 kms., there was a reduction of the scope of work
which would reduce running/maintenance expenditure for the tenure of the
BOOT Agreement and thus, the payment to be made to the Appellant would
have to be reduced. The Respondent had claimed that this amount was
Rs.3,93,38,000/-, however the Arbitral Tribunal had awarded Rs. 2 crores.
45. We are unable to agree with this finding of the learned Single Judge.
Given the fact that the entire case of the Respondent has been that the parties
have entered into an amicable resolution of their disputes through the MoM
and have taken steps on the basis of the settlement, any deduction that the
Respondent claims should also have formed part of the negotiations. The
table of claims which has been reproduced in paragraph 26.2 above does set
out a column for deduction of de-scoping work. It also refers to a deduction
of Rs. 11.68 crores as the indicated cost for the extra job which is then
worked out by the Respondent as Rs. 21.88 crores (approximately) but
revised to Rs. 13.61 crores. This amount was then deducted by the
Respondent prior to making a one-time payment of Rs. 60,39,35,869/- to the
Appellant. The final negotiations in the MoM were by the Respondent based
on the deductions for the de-scoped work, including the return of the pipes.
Once this final negotiations were concluded and binding on the Appellant,
these were to bind the Respondent as well.
46. The Arbitral Tribunal based on a guestimation awarded certain
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amounts to the Respondent which award was upheld by the learned Single
Judge. Given the findings as set out above, for the Claim Nos. 2, 3 and 4, we
are of the opinion that allowing all the Counter-Claims of the Respondent
would be patently illegal.
47. In these circumstances, in the opinion of the Court, the Counter-
Claims raised by the Respondent would not arise. The challenge of the
Appellant to the extent of allowing the Counter-Claim is accepted.
48. The scope of interference in an Arbitral Award under Sections 34 and
37 of the Arbitration Act is limited. Amongst the grounds provided in the
Arbitration Act for interference with Arbitral Award is patent illegality,
which is limited to situations where the findings of the Sole Arbitrator are
arbitrary, capricious or perverse, or when the conscience of the Court is
shocked, or when the illegality is not trivial but goes to the root of the
matter. [See: PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees of V.O.
Chidambranar Port Trust Tuticorin7 and MMTC Limited v. Vedanta
Limited8].
48.1 From an examination above and to the extent that the Award is not in
consonance with the contract between the parties and the documents as
available on record, the Award would be patently illegal and is thus set aside
in terms of the discussion above.
CONCLUSION
49. Accordingly, the Appeals are partially allowed. Claim Nos. 2, 3 and 4
7
2021 SCC OnLine SC 508
8
(2019) 4 SCC 163
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which have been disallowed by the learned Single Judge are sustained while
the Counter-Claims of the Respondent are disallowed.
50. The Appeals are disposed of in the aforegoing terms.
TARA VITASTA GANJU, J.
VIBHU BAKHRU, J.
APRIL 17, 2025/ ha
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