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SUPREME COURT OF INDIA
S.A. BOBDE, L. NAGESWARA RAO, JJ.
M.P. POWER GENERATION CO. LTD. & ANR. – Appellants
Versus
ANSALDO ENERGIA SPA & ANR. – Respondents
Civil Appeal No. 3804 of 2018 (Arising out of S.L.P. (Civil) No. 39067 of 2013)
Decided On : 16-04-2018
(1994) Supp.1 SCC 644; (2003) 5 SCC 705; (2008) 13 SCC 80; (2014) 9 SCC 263; (2015) 3 SCC 49 – Relied upon
(b) Arbitration and Conciliation Act, 1996 – Section 34 – Tribunal rightly holding that production of the Letter of Comfort was a fundamental condition of the agreements – Failure to do so was a breach by the Board. (Para 22)
(c) Arbitration and Conciliation Act, 1996 – Section 34 – Consent of a party obtained by misrepresentation – Party concerned entitled to avoid the contract. (Para 24)
AIR 1929 Nagpur 254; (2003) 12 SCC 91 36 – Distinguished
(d) Arbitration and Conciliation Act, 1996 – Section 34 – Refund of bank guarantee – Claimant furnishing three bank guarantees – One being performance bank guarantee and two bank guarantees for amounts to be advanced by Board – Board actually advancing the amount – Held on illegal termination of contract by Board, claimant only entitled to refund of bank guarantee amount for performance guarantee – Arbitral tribunal wrongly directing Board to return the amount of all three bank guarantees. (Para 32)
Facts of the case:
M.P. Power Generation Co. Ltd. formerly known as Madhya Pradesh Electricity Board invited proposals for refurbishment of Units 3 and 4 of the Thermal Power Plants at Amarkantak having the capacity of 120 MW by a notice inviting tender dated 24th October, 1996.
A provisional Letter of Intent for refurbishment of Thermal Power Plant of 2 x 120 MW Phase–II was issued by the Board to Respondent No.1, ANSALDO Energia SPA.
A Bank Guarantee was furnished by the Claimants as per Clause 9.2 (a) of the Onshore Supply Contract for Rs. 9,29,20,000/-. Another Bank Guarantee was furnished by the Claimants on 23rd February, 2000 as per the stipulation in Clause 9.2(a) of the Offshore Supply Agreement for US $ 1,708,100/-. The above Bank Guarantees were given towards advance payment that was to be made by the Board. On 24th February, 2000, a Performance Bond was executed by the ANZ Grindlays Bank Limited on behalf of the Claimants for Rs.18,48,00,000/- pursuant to Clause 4.1 of the Overall Coordination Agreement. The Board subsequently made advance payments of the amounts equivalent to the two Bank Guarantees dated 22nd February, 2000 and 23rd February, 2000 given by the Claimant.
In response to a letter written by the Board on 15th June, 2001, the Claimant wrote to the Board on 21st June, 2001 to treat the Agreement as expired.
The Board invoked the three Bank Guarantees on 23rd June, 2001. The Board complained of substantial breach of Agreement on the part of the Claimant. The Claimant was given 30 days’ time for curing the defaults. Not satisfied with the explanation given by the Claimant, the Board terminated the contract. The Claimant raised a dispute which was referred to Arbitration. The Arbitral Tribunal passed an award in favour of the Claimant
The Petition filed by the Board under Section 34 of the Arbitration and Conciliation Act, 1996 was allowed.
The High Court set aside the judgment of the learned Additional District Judge and restored the award of the Arbitral Tribunal.
Finding of the Court:
There is no infirmity in arbitral award except for directing Baord to return amount of all three bank guarantees.
Result: Appeals dismissed with modification in the award.
JUDGMENT
L. NAGESWARA RAO, J.
Leave granted.
1. M.P. Power Generation Co. Ltd. formerly known as Madhya Pradesh Electricity Board (hereinafter referred to as ‘the Board’) invited proposals for refurbishment of Units 3 and 4 of the Thermal Power Plants at Amarkantak having the capacity of 120 MW by a notice inviting tender dated 24th October, 1996. A provisional Letter of Intent for refurbishment of Thermal Power Plant of 2 x 120 MW Phase–II was issued by the Board to Respondent No.1, ANSALDO Energia SPA (for short ‘the Claimant’) on 11th May, 1999. Thereafter, on 24th August, 1999 four Agreements were signed between the Claimants and the Board viz Overall Coordination Agreement, Offshore Supply Contract, Onshore Supply Contract and Onshore Services Contract.
2. A Bank Guarantee dated 22nd February, 2000 was furnished by the Claimants as per Clause 9.2 (a) of the Onshore Supply Contract for Rs. 9,29,20,000/-(10 per cent of the Onshore Supply Contract price). Another Bank Guarantee was furnished by the Claimants on 23rd February, 2000 as per the stipulation in Clause 9.2(a) of the Offshore Supply Agreement for US $ 1,708,100/-. The above Bank Guarantees were given towards advance payment that was to be made by the Board. On 24th February, 2000, a Performance Bond was executed by the ANZ Grindlays Bank Limited on behalf of the Claimants for Rs.18,48,00,000/-(10 per cent of the total Contract price) pursuant to Clause 4.1 of the Overall Coordination Agreement. The Board subsequently made advance payments of the amounts equivalent to the two Bank Guarantees dated 22nd February, 2000 and 23rd February, 2000 given by the Claimant.
3. The Zero Date (i.e. effective date of Contract) as per Clause 7 of the Overall Coordination Agreement is as follows:
“7. Notice to Proceed
7.1 Zero Date (Effective Date of Contract)
The zero date of the Contract shall mean the date on which the all the following conditions are fulfilled:
(i) Signature of the Contract
(ii) Receipt by ANSALDO of the Notice to Proceed
(iii) Receipt by MPEB the Bank Guarantee from ANSALDO for the Advance Payment (10% of the Contract Price)
(iv) Receipt by ANSALDO of the Advance Payment
(v) Receipt by ANSALDO of the Letter of Credit for the Offshore Supply and Letter of Comfort/ Support for Onshore Supply and Onshore Services
(vi) Financial tie-up of PFC loans
7.2 If the Start Date has not occurred on or before six
(6) months after the date hereof, then the Contract will automatically expire, without any liability on either side and the price will cease to be valid and will be subject to renegotiation.
7.3 MPEB may not issue a Notice to Proceed under any of the Refurbishment Contracts without issuing a Notice to Proceed under all of the Contracts.”
4. It was agreed between the parties that the Zero Date would be 9th March, 2000. Thereafter, there was exchange of correspondence and several meetings held between the Claimant and the Board for resolution of certain issues. In response to a letter written by the Board on 15th June, 2001, the Claimant wrote to the Board on 21st June, 2001 to treat the Agreement as expired. The Claimant stated in the said letter that it was suspending the performance of the Agreement. There was a reference to violation of a fundamental condition of the Contract i.e. non-furnishing of a Letter of Comfort from the Power Finance Corporation as provided in Clause 5.6 of the Onshore Supply Contract. The Claimant further complained of a misrepresentation of the warranty contained in Clause 19.2 (vii) of both the Onshore and Offshore Supply Contracts and Clause 20.2 of the Onshore Services Contract.
5. The Board invoked the three Bank Guarantees on 23rd June, 2001. Thereafter, the Board proceeded to issue a notice for default as provided in Clause 16.3 of the Offshore and Onshore Supply Contracts and Clause 17.3 of Onshore Services Contracts on 29th August, 2001. The Board complained of substantial breach of Agreement on the part of the Claimant. The Claiman
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