A party must prove actual losses to validly invoke a Contract Performance Bank Guarantee and cannot use it as a penalty for non-performance.

JUDGMENT

[VIA VIDEO CONFERENCING]

Sanjeev Narula, J. (Oral):--The present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (in short `the Act') assails the award dated 22nd May, 2020 whereby the learned Sole Arbitrator, has inter alia rejected all the counter-claims of the Petitioner- Technofab Engineering Limited (in short `TEL') and awarded an amount of Rs. 1,87,17,280/-, along with pre- reference, pendente-lite and future interest @ 9% towards the refund of unlawfully encashed Contract Performance Bank Guarantees (in short `CPBGs'), in favour of the Respondent- Tesla Transformers Limited (in short `TTL').

The Dispute

2. The brief facts, which led the parties to arbitration are as follows:

2.1. TEL entered into five separate contracts with the Power Grid Corporation of India Limited (`PGCIL') for installation, commissioning, assembling, running, operating and maintaining electricity substations in the State of Tripura. For this purpose, TEL needed transformers for running the substations. In order to meet a part of their requirement, negotiations were held and eventually three purchase orders were placed on TTL for the supply of 5 MVA and 7.5 MVA power transformers and 100 KVA station transformers in the month of June, 2017.

2.2. As per the agreed delivery schedule, TTL was to deliver the transformers on or before 30th September, 2018. It was provided in the terms of supply that in the event of any unforeseen circumstances, the time period for supply could be extended upto 3rd/4th quarter of the financial year 2018-19.

2.3. In July, 2017, TEL granted manufacturing clearance to TTL. TTL did not make much progress till November, 2017 and as on 26th March, 2018, only 11 5 MVA transformers, out of 43, were supplied to TEL. In these circumstances, TEL terminated the contract vide letter dated 1st October, 2018 and also expressed its intent to invoke the CPBGs. TEL claimed that it was constrained to engage another supplier for supply of the balance undelivered quantity and invoked three CPBGs to mitigate the losses.

2.4. Accordingly, TTL vide notice dated 26th October, 2018 invoked arbitration and sought adjudication of the disputes. Mr. Kuldeep Singh (Retd.), former Additional District Judge was appointed as the Sole Arbitrator.

2.5. Before the Arbitrator, the parties filed their respective claims. TTL prayed for the following reliefs:

"(i). Pass an award in favour of Claimant by declaring the invocation and encashment of Bank Guarantee(s) bearing no.1920188G0000020; 1920188G0000026; 1920188G0000027 by Respondent as illegal and null and void.

(ii). Pass and award in favour of Claimant by declaring the termination of Purchase Orders by Respondent vide letter dated 01.10.2018 as illegal and null and void.

(iii). Pass and award in favour of Claimant and against the Respondent for a sum of Rs. 187,17,280/- towards illegal encashment of bank Guarantee(s).

(iv). Pass and award in favour Claimant and against the Respondent for a sum of Rs. 9,07,787/- (being interest @ 18% per annum from the 01.10.2018 i.e., date of encashment of Bank Guarantee(s) till the date of filing of claim, on Rs. 187,17,280/-).

(v). Pass an award in favour of Claimant and against the Respondent for a sum of Rs. 58,40,000/- towards the cost of two transformers of 5MVA/33/11KV, which were ready and offered by Claimant were not accepted by Respondent.

(vi). Pass and award in favour of the Claimant and against the Respondent for a sum of Rs. 3,24,120/- (being interest @ 18% per annum from the 15.09.2018 i.e. date of inspection call for two transfo