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2020 Supreme(Del) 76
IN THE HIGH COURT OF DELHI AT NEW DELHI
Sanjeev Narula, J.
G. + H Schallschutz Gmbh – Appellant
Versus
M/S Bharat Heavy Electricals Ltd – Respondent
Original Miscellaneous Petition (Comm) No. 158 of 2019
Decided on : 07-01-2020
Advocate Appeared:
Abhimanyu Bhandari, Advocate, Roohina Dua, Advocate, Anirudh Bakhru, Advocate, Cheitanya Madan, Advocate, Ciccu Mukhopadhaya, Advocate, Saurav Agrawal, Advocate, Akanksha Sisodia, Advocate, Aakriti Dawar, Advocate, Vibhu Anshuman, Advocate, Anshuman Chowdhury, Advocate
The scope of interference by the Court in international commercial arbitration in India has been narrowed down, and even patent illegality is no longer a ground available to challenge an international commercial award passed in India.
Headnote:
ARBITRATION - INTERNATIONAL COMMERCIAL ARBITRATION - GROUNDS FOR SETTING ASIDE AWARD - PATENT ILLEGALITY - SCOPE OF INTERFERENCE BY COURT - NARROWED DOWN - SALE OF GOODS ACT - SECTION 44 - APPLICABILITY - SELLER'S OBLIGATION TO DELIVER GOODS - BUYER'S OBLIGATION TO ACCEPT AND PAY FOR GOODS - INTERPRETATION OF CONTRACT - JURISDICTION OF ARBITRAL TRIBUNAL - SECTION 34 OF THE ARBITRATION AND CONCILIATION ACT, 1996.
Fact of the Case:
Petitioner, a German company, entered into a Purchase Order with Respondent, an Indian company, for the manufacture, supply, and supervision of erection and commissioning of four identical Exhaust Gas Systems. Due to the political situation in Yemen, Respondent declared force majeure conditions and invoked the force majeure clause in the Purchase Order. Petitioner stored the completed supplies and claimed payment for the goods or damages. The matter went to arbitration, and the Arbitral Tribunal (AT) held that the Purchase Order was frustrated, but Clause 25 thereof would operate to preserve the contract to the extent of the supply of the Components. The AT reserved its jurisdiction on the question of damages arising from the breach. Petitioner challenged the Partial Final Award (PFA) before the Court, which was dismissed. In the Final Award, the AT denied Petitioner's damages claim, awarded storage costs, and interest. Petitioner challenged the Final Award under Section 34 of the Arbitration and Conciliation Act, 1996.
Finding of the Court:
1. The Court held that the findings in the PFA and the Final Award were not conflicting. The AT, in the PFA, decided that Respondent was in breach of its obligation under Clause 25 of the Purchase Order, but the question of damages was reserved for further submissions. The AT, in the Final Award, denied damages because Petitioner did not comply with the conditions stipulated under Clause 25. The Court found that the two awards dealt with different aspects and were not irreconcilable. 2. The Court held that Petitioner was not entitled to damages because it failed to take steps to firmly exercise its rights under Clause 25 of the Purchase Order. The AT found that Petitioner could have shipped the components to Mumbai or Haridwar and claimed payment, but it did not do so. The Court held that this finding was factual and did not call for interference. 3. The Court held that the Sale of Goods Act, Section 44, was not applicable because Petitioner did not deliver the goods and did not prove the loss sustained. The Court found that the AT's observations on this aspect were factual and did not call for interference.
Issues: 1. Whether there is any conflict between the findings in the Partial Final Award and the Final Award. 2. Whether the Petitioner is entitled to damages. 3. Whether the Sale of Goods Act, Section 44, is applicable.
Ratio Decidendi: 1. The Court held that the findings in the PFA and the Final Award were not conflicting because they dealt with different aspects. The AT, in the PFA, decided that Respondent was in breach of its obligation under Clause 25 of the Purchase Order, but the question of damages was reserved for further submissions. The AT, in the Final Award, denied damages because Petitioner did not comply with the conditions stipulated under Clause 25. The Court found that the two awards dealt with different aspects and were not irreconcilable. 2. The Court held that Petitioner was not entitled to damages because it failed to take steps to firmly exercise its rights under Clause 25 of the Purchase Order. The AT found that Petitioner could have shipped the components to Mumbai or Haridwar and claimed payment, but it did not do so. The Court held that this finding was factual and did not call for interference. 3. The Court held that the Sale of Goods Act, Section 44, was not applicable because Petitioner did not deliver the goods and did not prove the loss sustained. The Court found that the AT's observations on this aspect were factual and did not call for interference.
Final Decision: The Court dismissed the petition challenging the Final Award.
JUDGMENT :
Sanjeev Narula, J.
1. G + H Schallschutz GmbH, the Claimant in the arbitration proceedings, (hereinafter "Petitioner") has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter "the Act") for setting aside the Final Award dated 20th December 2018 (hereinafter "Impugned Award"), passed by the Arbitral Tribunal comprising of Mr. John Beechey, CBE (Presiding Officer), Dr. Werner Muller and Dr. Sudipto Sarkar, (hereinafter "AT") constituted under International Dispute Resolution Centre ('IDRC'), London. The challenge to the award is based inter alia on the ground that it is contrary to the public policy of Indian law, vitiated by patent illegality and it is contrary and incompatible with the prior Partial Final Award dated 31st October 2017 (hereinafter " PFA"), passed by the AT.
Foreword
2. Before dealing with the rival contentions of the parties, a brief narrative of relevant facts is necessary to appreciate the perspective of the parties and the scope of challenge in the present petition.
3. Petitioner is a company incorporated under the laws of Germany and is engaged in the business of technical acoustics and industry. It primarily serves industrial and automotive sections, and power plant, gas & oil, and aviation industries. M/s Bharat Heavy Electricals Limited (Respondent in the Arbitration proceedings and hereinafter "BHEL" / "Respondent") is a power plant equipment manufacturer and is one of the largest manufacturing companies in India engaged in engineering, manufacturing, construction and commissioning of products for several industries, such as power, renewable energy, oil & gas, water and defense, amongst others.
4. Respondent was charged with the construction of the power plant in Marib, Yemen by the Public Electric Company of Yemen. For this purpose it issued a Tender enquiry to identify potential vendors. Pursuant thereto, on 3 rd January 2014, Respondent issued a Purchase Order in favour of the Petitioner for manufacture, supply and supervision of erection and commissioning of four identical Exhaust Gas Systems ("EGS") for a Siemens Gas Turbine Model SGT5-2000E for the Marib Project.
5. In terms of the purchase order, EGS was to be supplied in two lots consisting of two systems each and delivered to Hodeidah seaport in Yemen. First lot was to be delivered on 3 rd October 2014 and second on 3 rd February 2015. The delivery date was revised to 11th January 2015 and 13th April 2015 respectively. On 16th December 2014, Petitioner shipped embedded parts of the components of Lot-II along with corresponding parts of Lot-I which were accepted by the Respondent and part payments were also made. There is no disagreement between the parties in relation to this portion of the supply. The dispute pertains to delivery of Indian Components of Unit 3 and 4 of Lot-II, which originated with the Respondent contending that Government of India had put a travel advisory asking Indians to leave Yemen and to avoid all travel to the said destination due to deterioration of political situation. As a consequence, on 20th February 2015, Respondent wrote to the Petitioner to put the purchase order on hold with immediate effect till further communication. Petitioner responded by informing Respondent that Unit-3 of Lot-II was completed and had been successfully inspected by the Inspecting Agency, Unit-4 was at the final stage of completion and it recommended that work should be completed and stored in accordance with Clause 25 of the purchase order, until further orders/notice from the Respondent. On 30th March 2015, Respondent formally declared force majeure conditions w.e.f. 27th March 2015 in terms of the contract between the parties. Subsequently, on 1 st May 2015 the force majeure clause in the purchase order was invoked. Thereafter, correspondence followed between the parties, but without any resolution. Petitioner stored the completed supplies under storage and in accordance with revis
