Refusal to frame issues on counterclaims violates fundamental principles of justice, warranting judicial intervention.

JUDGMENT :

JASMEET SINGH, J.

1. This is a petition filed under section 34 of the Arbitration and Conciliation Act, 1996 (“1996 Act”) seeking setting aside of the Arbitral Award dated 18.06.2010 wherein the claims of the respondent were allowed to the tune of Rs. 34,71,073 less Rs. 1,20,000/- as penalty, along with 9% interest per annum.

FACTUAL BACKGROUND

2. The petitioner is a public sector undertaking of Government of N.C.T. of Delhi and a company duly registered under the provisions of Companies Act, is engaged in the business of power generation and distribution. The respondent is a company duly registered under the provisions of the Companies Act, 1956 and is engaged in the business of supply of spares and maintenance of power equipments.

3. The petitioner had floated a tender for supply and replacement of critical spares and commissioning at 62.5MWGE USA make Turbine of Unit No. 2 at I.P. Station vide tender no. DGM (M)/IPS/T-20/1654 dated 30.01.2004. The respondent submitted its offer on 17.02.2004. Thereafter the petitioner invited the respondent for negotiation with the Tender Committee of the petitioner on 10.03.2005. Consequent to the discussions, the petitioner issued a Letter of Intent (“LOI”) in favour of the respondent for supply of the critical spares and commissioning of 62.5MW GE USA make Turbine Unit No.2 at I.P. Station of the respondent company vide LOI bearing no. DGM(M)/IPS/T-20/J 959, dated 23.03.2004.

4. In terms of the said order, the respondent was required to supply spares as per the list attached at Annexure “A” to the said order for total value consideration of Rs.83,20,000/-. It was also agreed by the respondent that it will replace the supplied spares free of cost to exhibit its capability and for developing good relations for future business.

5. During the replacement of critical spares of Turbine Unit No. 2, after dismantling the Turbine, the conditions of blade (bucket) of Stage 2, 3 & 4, Nozzle Blades und diaphragm of Stage 2, 3 & 4were found extremely damaged and beyond the scope of repair. It was then mutually decided to replace the damaged blade of Stage 2, 3 & 4with new set of Blades, the damaged Nozzle Block with repaired Nozzle Block and to rebuild & repair the damaged diaphragm of Stage 2, 3, 4 & 5. The respondent finally completed the work on 31.05.2004and the unit was synchronized on 01.06.2004. There was a delay of 33 days in the completion of the allotted work by the respondent.

6. As there were disputes between the parties, the respondent invoked the arbitration process and consequently, the learned Sole Arbitrator was appointed.

7. The respondent in its Statement of Claim (“SOC”) prayed for Rs. 46,40,821/-, which consisted of outstanding of invoices, dated 24.05.2004, 23.06.2004 and 29.07.2004 along with interest @15% w.e.f. 14.06.2006 apart from claiming interest @ 15% p.a. on the outstanding amount of extra work done w.e.f. 29.09.2004, till the filing of the present claim along with future interest @ 15% p.a. on the total claim till its full realization by the respondent.

8. The petitioner is in its reply dated 13.03.2008 denied all the claims made by the respondent and stated that the respondent has committed a breach of contract by causing 33 days delay coupled with the fact that the condition to impose penalty was mentioned in the contract dated 23.03.2004. The petitioner has justified the deduction made by it from the invoices of the respondent in terms of the contract dated 23.03.2004. Further, because of delay of 33 days, Unit No. 2 could not become operational in its generating capacity to the tune of 50 MW. Consequently, the petitioner suffered due to non-functioning of Unit No.2, which resulted in loss of generation of electricity and the loss incurred by the petitioner has been estimated at Rs. 11,88,00,000/-.

9. The learned Sole Arbitrator, after hearing both the parties and cons