The main legal point established in the judgment is the Court's power to set aside an Award and appoint a new Arbitrator to determine compensation for breach of contract, in cases where the previous Arbitrator's decision is against law and public policy.

S. MURALIDHAR, J.

1. The Petitioner Canara Bank challenges an Award dated 22nd November 2012 passed by the sole Arbitrator in the disputes between it and Bharat Sanchar Nigam Ltd. (‘BSNL’), Respondent No.1. Renewable Energy Systems Ltd. (‘RESL’), Respondent No 2 was also party to the arbitration proceedings as co-claimant.

Background facts

2. The background to the present petition is that Canara Bank financed the manufacture of 9070 Solar Power Generating Systems (‘SPGS’) by RESL and supplied to BSNL in terms of a tripartite Master Lease Agreement (‘MLA’) dated 19th February 1998.

3. Under the MLA, the SPGS on being manufactured by RESL were in the first instance to be sold to Canara Bank at the agreed rate of Rs.21,200 per unit and then given on lease to BSNL for a fixed period of five years in terms of the conditions stipulated in the MLA. The SGPSs were to be installed by RESL at different stations, after the destination details were provided by BSNL.

4. Canara Bank states that it disbursed to RESL Rs.11,99,70,534.19 to meet the costs of manufacturing of the SPGS. According to Canara Bank pursuant to the MLA, only 1000 units of value of Rs.2.12 crores were commissioned. The destination details of remaining 8070 SPGS were not provided by BSNL.

5. A supplementary agreement dated 19th April 2000 was executed between the parties in respect of the 1000 units that had been commissioned. This agreement recorded the amount of the quarterly lease rental (‘QLR’), the date of commencement of QLR and other charges payable by BSNL to Canara Bank. It is stated that the obligation under the contract for installation of the remaining 8070 SPGS could not be completed on account of the breach committed by BSNL by not giving the destination details. According to Canara Bank, it was thus deprived of the lease rental for the entire quantity of 9070 units besides lease management fee and additional fee of QLR for each completed month of delay in respect of the remaining 8070 units. In respect of the 1000 units that had been installed, the lease management fee was not paid to Canara Bank. RESL took the stand that BSNL had committed a default by refusing to accept the delivery of 8070 units. Canara Bank's case was that RESL also failed to repay the outstanding amount to Canara Bank.

6. RESL invoked the arbitration clause and Mr. H.P. Mishra, DDG (TRF), BSNL was nominated by BSNL as the sole Arbitrator. RESL filed its claim before the sole Arbitrator for recovery of loss of profit, for damages etc. against BSNL for breach of contract. Canara Bank also filed its claims against BSNL towards the QLR in respect of the 1000 installed units and loss of profit on account of non-installation of balance 8070 units. It also had claims against the RESL. The defence of BSNL was that due to the inordinate delay on the part of RESL, the performance of the MLA became impracticable.

The first Award

7. In the Award dated 24th February 2004 (hereafter 'first Award'), the sole Arbitrator framed as many as 34 issues arising from the pleadings filed by the parties. The learned Arbitrator (hereafter 'first Arbitrator') held BSNL guilty of breach of contract both as regards demand of the lease money for the 1000 SPGS installed as well as for the balance 8070 units which could not be sold by RESL to Canara Bank and in turn could not be given to BSNL on lease by Canara Bank. However, the learned Arbitrator held that the precise liability of BSNL could not be determined “unless the parties offer satisfactory proof of the losses reportedly suffered by them that are directly attributable to the said (in) action on the part of the Respondent DOT/BSNL.”

8. The sole Arbitrator in partly answering Issue No.27, in para 6 of the conclusion observed as under:

“6. I am therefore of the view that the Claimant-CB has to be compensated for the losses, etc. suffered by it on account of the breach of contract on the part of the Respondent-DOT/BSNL. Such compensation cannot be withheld on th