PARSA KENTE COLLIERIES LIMITED versus RAJASTHAN RAJYA VIDYUT UTPADAN NIGAM LIMITED

[2019] 8 S.C.R.

PARSA KENTE COLLIERIES LIMITED

RAJASTHAN RAJYA VIDYUT UTPADAN NIGAM LIMITED

(Civil Appeal No. 9023 of 2018)

MAY 27, 2019

[ARUN MISHRA AND M. R. SHAH, JJ.]

Arbitration and Conciliation Act, 1996: s. 37 – Appeal under– Jurisdiction of the appellate court while considering the awardpassed by the arbitrator – Coal Mining and Delivery AgreementCbetween the appellant and the respondent for supply of coal –Disputes between the parties, as regards the escalation price, fixedcosts, amount lying in escrow account and cost of construction ofrailway siding – Award by arbitrator allowing the claims under theheads of ‘price adjustment’, ‘fixed costs’ and ‘escrow account’,Dhowever, rejected under the head ‘construction of railway siding’ –Award confirmed by the commercial court, however, set aside by theHigh Court – Justification of – On appeal, held: With respect toclaim no.1-price adjustment/escalation, interpretation by thearbitrator was both possible as well as plausible – Merely becausesome other view could have been taken, the High Court was notEjustified in interfering with the interpretation –Though the HighCourt observed that the award passed by the arbitrator with respectto claim no.1 was against the public policy, but there was no elementof public policy – High Court exceeded in its jurisdiction ininterfering with the award passed by the arbitrator as regards claimFno. 1 – With respect to claim no.2-fixed costs, the High Court rightlyset aside the award passed by the arbitrator – Except the CA’scertificate, no further evidence had been led with respect to actualloss – On the contrary, in the relevant year the quantity of the coallifted by the respondent was much above the fixed quantity – Asregards, claim no.3-escrow account, the object and purpose ofGopening the escrow account was to see that the appellant companyfulfils the contract as per the agreement and till the closure of thecoal blocks – It was not open for the appellant to claim the amountlying in the escrow account, else the object of opening the escrowaccount would be frustrated – Thus, with respect to claim no.3-

PARSA KENTE COLLIERIES LTD. v. RAJASTHAN RAJYAVIDYUT UTPADAN NIGAM LTD.

escrow account, the High Court rightly held the reasoning is perverseor so irrational that no reasonable person could have arrived at onthe material/evidence on record – Thus, the order passed by theHigh Court as regards claim no. 1 is set aside and the award passedby the arbitrator with respect to claim no.1 is restored and the orderpassed by the High Court setting aside the award with respect toclaim no.2-fixed costs and claim no.3-escrow account is upheld.

Partly allowing the appeal, the Court

HELD: 1.1 So far as the claim with respect to “priceadjustment/escalation” is concerned, the arbitrator held that thedate of commencement of the first operating year for the purposesof clauses 5.2.2 read with 5.4.3 would be 25.06.2011 and thereforezero year for the purpose of price escalation has to be 2011-12.Accordingly, the arbitrator considered the escalated price in F.Y.2013-14 at Rs.895/- per MT. However, according to therespondent, as the date of commencement was changed from25.06.2011 to 25.03.2013, the zero year for the purpose of priceescalation would be 2013-14. Price escalation is permissible underthe contract/agreement itself and there shall be price escalationevery year as per the formulae mentioned in the agreement,commencing from the date of commencement. However, it is truethat the initial date of commencement, i.e., 25.06.2011 came tobe extended to 25.03.2013 by mutual agreement. However, thesame was due to force majeure as there was delay of 21 monthsin obtaining the forest clearance and environmental clearance.The price was quoted in the year 2007-08, applicable from 2011.However, there was delay in obtaining the forest clearance andenvironmental clearance and therefore the date ofcommencement of supply came to be changed. In between therewould be hike in labour charges, transportation charges, etc.Though the date of commencement of supply was extended, therewas no corresponding amendment in the relevant clauses of theagreement with respect to price escalation. There was no specificagreement that in the year 2013, the appellant would supply thecoal at the same price, without any price escalation. Therefore,considering the overall facts and circumstances of the case andby giving cogent reasons, the arbitrator interpreted the relevantclauses of the contract and specifically held that the date of

Acommencement of the first operating year for the purposes ofclauses 5.2.2 read with 5.4.3 would be 25.06.2011 and accordinglythe zero year for the purpose of price escalation would be 2011-12 and therefore the appellant shall be entitled to the enhancedamount as is applicable in the year 2013-14 (the price escalation).Having considered the reasoning given by the arbitrator, theBinterpretation by the arbitrator was both possible as well asplausible. Therefore, merely because some other view could havebeen taken, the High Court is not justified in interfering with theinterpretation made by the arbitrator. Therefore, in the facts andcircumstances of the case, the High Court has clearly exceededCin its jurisdiction in interfering with the award passed by thearbitrator with respect to claim no.1-price adjustment/escalation.Though the High Court has observed that the award passed bythe learned arbitrator with respect to claim no.1 was against thepublic policy, with respect, there is no element of public policy. It

was pure and simple case of interpretation of the relevant clausesDof the agreement which does not involve any public policy.Therefore, the impugned judgment and order passed by the HighCourt for quashing and setting aside the award passed by thearbitrator with respect to claim no.1-price adjustment/escalationcannot be sustained and the same deserves to be quashed andEset aside. [Para 11.1] [743-D-H; 744-A-F]

1.2 So far as claim no.2-”fixed costs” and an amount of Rs.78crores awarded by the arbitrator with respect to compensation ofloss is concerned, having gone through the relevant material onrecord, the High Court has rightly set aside the award passed byFthe arbitrator with respect to claim no.2. Except the CA’scertificate, no further evidence had been led with respect to actualloss. Considering the material on record, it is on the contraryfound that in the relevant year the quantity of the coal lifted bythe respondent was much above the fixed quantity. Thus, theaward passed by the arbitrator with respect to claim no.2 wasGcontrary to the evidence on record and thus, is rightly set asideby the High Court. [Para 11.2] [743-G-H; 744-B]

1.3 As regards claim no.3-”Escrow Account”, the HighCourt rightly interfered with the award passed by the arbitrator

with respect to claim no.3. The escrow account was required tobe opened as per the guidelines issued by the Ministry of Coal,Government of India for the preparation of mine closure plant.The guidelines required, inter alia, the mining company to openan escrow account with any schedule bank. Accordingly, therespondent opened an escrow account and executed an escrowagreement. From the correspondence between the parties, itappears that even the appellant consented for opening the escrowaccount. The appellant also agreed that the amount to bedeposited in the escrow account will be recovered by therespondent from immediate next payment of the coal bills of thejoint venture company-PKCL raised towards dispatches of coalfrom appellant’s coal blocks. Thus, thereafter it was not open forthe appellant to claim the amount lying in the escrow account. Ifthe amount lying in the escrow account is returned to the appellant,the purpose and object of opening the escrow account which wasas per the guidelines of the Ministry of Coal would be frustrated.The object and purpose of opening the escrow account was tosee that the appellant company fulfils the contract as per theagreement and till the closure of the coal blocks. Therefore, theHigh Court rightly interfered with the award passed by thearbitrator with respect to claim no.3-escrow account by observingthat the reasoning is perverse or so irrational that no reasonableperson could have arrived at on the material/evidence on record.[Para 11.3] [744-B-F]

1.4 The impugned judgment and order passed by the High Courtinsofar as quashing and setting aside the award passed by thesole arbitrator, insofar as claim no. 1-price adjustment/escalationis quashed and set aside and the award passed by the arbitratorwith respect to claim no.1 is restored. The impugned judgmentand order by the High Court insofar as quashing and setting asidethe award passed by the arbitrator with respect to rest of theclaim no.2-fixed costs and claim no.3-escrow account isconfirmed. [Para 12] [744-G-H; 745-A-B]

Associate Builders v. Delhi Development Authority(2015) 3 SCC 49 ; Steel Authority of India Limited v.Gupta Brother Steel Tubes Limited (2009) 10 SCC 63 :

CDE

[2019] 8 S.C.R.

FCIVIL APPELLATE JURISDICTION : Civil Appeal No. 9023of 2018.

From the Judgment and Order dated 28.02.2018 of the High Courtof Judicature for Rajasthan at Jaipur Bench, Jaipur in D. B. Civil Misc.Appeal No. 3785 of 2017.

GRanjit Kumar, Vikram Nankani, Sr. Advs., Mahesh Agarwal,Anurup Singh, Salil Sinha, Anshuman Srivastava, Rishi Raj Sharma, E.C. Agrawala, Advs. for the Appellant.

Tushar Mehta, Solicitor General, Kartik Seth, Ankur S. Kulkarni,Nishant Kumar, Advs. for the Respondents.

The Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 28.02.2018 passed by the Commercial Appellate Court/Division Bench of the High Court of Judicature for Rajasthan, Bench atJaipur in D.B. Civil Miscellaneous Appeal No. 3785 of 2017, by whichthe High Court has allowed the said appeal preferred by the respondentherein – Rajasthan Rajya Vidyut Utpadan Nigam Limited and has quashedand set aside the award passed by the learned Arbitrator, confirmed bythe Commercial Appellate Court at Jaipur, the appellant – the originalclaimant – Parsa Kente Collieries Limited has preferred the presentappeal.

2. That in the month of March, 2006, the respondent floated atender for joint venture to undertake coal block development, mining andtransportation of coal and delivery. That one Adani Enterprises Limited(AEL) submitted bid which was accepted on 12.05.2006. Letter ofIntent was issued to AEL by the respondent on 23.10.2006. Respondentand AEL entered into joint venture, namely, Parsa Kente CollieriesLimited, the appellant herein. Coal Mining Service Agreement wasentered into between the said Parsa Kente Collieries Limited and AEL.That Coal Mining and Delivery Agreement (hereinafter referred to as‘CMDA’) was executed between the appellant and the respondent on16.07.2008 for supply of coal.

2.1 As per CMDA, the date of commencement of the contractwas 25.06.2011. As per CMDA between the appellant and the respondent,the coal supply was to commence at the earliest within 42 months, orwithin 48 months from the date of allotment of coal blocks, i.e., by25.06.2011. CMDA also provided clause for extending the date ofcommencement. Clause 3.2.1 of the CMDA provided for scope ofwork; Clause 4.1.3 and 4.1.4 provided for responsibility of the respondentto inform the appellant as regards the requirement of coal in advance.Clause 4.5 provided for commencement of the date; clause 5.1 providedfor contract of price; clause 5.2.2. provided for calculation of basic price;clause 5.4.3 provided for escalation in price; clause 7.1 provided forforce majeure and clause 7.3 provided for effect of force majeure. Therewas delay of 21 months in obtaining the forest clearance andenvironmental clearance. The appellant started supply of coal to the

Arespondent with effect from 25.3.2013, i.e., after delay of 21 months.It appears that the date of commencement was extended by mutualagreement from 25.6.2011 to 25.3.2013. However, certain disputes arosebetween the parties, more particularly the escalation price, fixed costs,amount lying in Escrow account and cost of construction of railwaysiding. Therefore, the appellant invoked clause 10.2 of the CMDA andBsought arbitration. retired Hon’ble Judge of the Rajasthan High Courtwas appointed as the sole arbitrator. The appellant submitted thestatement of claim and thereafter filed another statement of claim.2.2 Before the learned Arbitrator, the claim was bifurcated intofour heads, namely, (1) Price Adjustment; (2) Fixed Costs; (3) EscrowCAccount; and (4) Construction of Railway Siding. The learned Arbitratorpassed an award dated 27.05.2015 allowing the claims under the headsof ‘Price Adjustment’, ‘Fixed Costs’ and ‘Escrow Account’ and rejectedthe claim under the head ‘Construction of Railway Siding’. While allowingthe claim under the head ‘Price Adjustment’, the learned Arbitrator heldDthat the date of commencement of the first operating year for thepurposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011. Thelearned Arbitrator further held that thus the Zero year for the purpose ofprice escalation has to be 2011-2012. The learned Arbitrator accordinglyheld that because the date of commencement of the agreement for thepurpose of price escalation is 25.06.2011, the appellant shall be entitledEto the enhanced amount as applicable in 2013-2014. Accordingly, thelearned Arbitrator held that the appellant is entitled to the coal price atRs.837/- PMT in F.Y. 2013-14 and thereafter the escalated price in thesubsequent years as per the relevant clauses of the contract – CMDA.

2.3 That while allowing the claim with respect to ‘Fixed Costs’,Fthe learned Arbitrator held that the respondent could not take the requireddelivery of the coal from the appellant, thus causing loss to the appellant.The learned Arbitrator held that therefore the appellant is entitled tocompensation as claimed for Rs.78 crores.

2.4 That while allowing the claim with respect to ‘Escrow Account’,Gthe learned Arbitrator held that the undertaking given by the appellantwas limited to contingency where on account of failure of completionof mine closure activity by the appellant led to the forfeiture of anyamount deposited in the escrow account, the respondent would be entitledto recover the same from the monthly running bills of the appellant. TheHlearned Arbitrator observed, however, as no such occasion has arisen,

the question of any deduction on the said count does not arise.Consequently, the learned Arbitrator directed the respondent to returnthat amount which was lying in the escrow account which was deductedfrom the monthly running bills of the appellant.

2.5 As observed hereinabove, the learned Arbitrator rejected claimno.4, namely, under the head ‘Construction of Railway Siding’. Theaward declared by the learned Arbitrator came to be confirmed by thelearned Commercial Court, Jaipur in an application under section 34 ofthe Arbitration and Conciliation Act.

3. Feeling aggrieved, the respondent preferred an appeal underSection 37 of the Arbitration Act before the Commercial Appellate Court/Division Bench of the High Court of Rajasthan at Jaipur. By the impugnedjudgment and order dated 28.02.2018, the High Court has allowed thesaid appeal and has set aside the award passed by the learned Arbitratorand confirmed by the Commercial Court, Jaipur.

4. Feeling aggrieved by the impugned judgment and order passedby the Division Bench of the High Court, the original claimant – theappellant has preferred the present appeal.

5. Shri Ranjit Kumar, learned Senior Advocate has appeared onbehalf of the appellant and Shri Tushar Mehta, learned Solicitor Generalof India has appeared on behalf of the respondent.

5.1 Shri Ranjit Kumar, learned Senior Advocate appearing onbehalf of the appellant has vehemently submitted that in the facts andcircumstances of the case, the High Court ought not to have interferedwith the concurrent findings of the learned sole Arbitrator and the learnedCommercial Court under Section 34 of the Arbitration Act by giving analternate construction to the CMDA. It is vehemently submitted that bypassing the impugned judgment and order, the High Court has exceededin its jurisdiction in interfering with the award passed by the learnedArbitrator, confirmed by the learned Commercial Court, while exercisingthe powers under Section 37 of the Arbitration Act.5.2 It is further submitted by the learned Senior Advocate appearingon behalf of the appellant that under Section 37 of the Arbitration Act,the scope of judicial inquiry is narrow and does not entail giving ownconstruction to the contract. It is submitted by disturbing the findings,the High Court has gone beyond the limited scope of inquiry contemplatedunder Section 37 of the Arbitration Act.

A5.3 It is further submitted by the learned Senior Advocate appearingon behalf of the appellant that the Division Bench of the High Court hasfailed to appreciate that the interpretation made by the learned soleArbitrator on the clauses of CMDA was plausible construction/interpretation and therefore the same could not have been substituted bythe High Court in exercise of powers under Section 37 of the ArbitrationBAct.

In support of his above submissions, Shri Ranjit Kumar, learnedSenior Advocate has heavily relied upon the decisions of this Court inthe cases of Associate Builders v. Delhi Development Authority,reported in (2015) 3 SCC 49; Steel Authority of India Limited v.Gupta Brother Steel Tubes Limited, reported in (2009) 10 SCC 63and the recent decision of this Court in the case of SsangyongEngineering & Construction Co. Limited v. National HighwaysAuthority of India (NHAI), rendered on 08.05.2019 in Civil AppealNo. 4779 of 2019, reported in 2019 SCC Online SC 677.

5.3.1 It is further submitted by the learned Senior Advocateappearing on behalf of the appellant that admittedly there was delay of21 months in supply of coal, which was due to the force majeure asthere was delay in obtaining the forest clearance and environmentalclearance. It is submitted that the price which was agreed by theappellant in the year 2008 to be paid in the year 2011 would never remainthe same in the year 2013-14. It is submitted that therefore though thecommencement date as per CMDA was extended due to an admittedfact of force majeure to 25.3.2013, the commencement date wouldremain as the date defined under the CMDA, i.e., 25.06.2011 andtherefore the price escalation ought to be considered from that date.

5.3.2 It is further submitted by the learned Senior Advocateappearing on behalf of the appellant that though by mutual agreementthe commencement date was extended due to an admitted fact of forcemajeure to 25.03.2013, there was no agreement to supply the coal atthe same price which was to be supplied in the year 2011. It is submittedGthat there is specific clause – clause 4.5.2 which allows extension ofcommencement date in cases of force majeure, however, no suchcorresponding clause has been provided in clause 5.4.3, which is clausefor price escalation. It is submitted that the intention of parties wasnever to unilaterally extend the first operating year referred to in clause

5.2.2. It is submitted that therefore the price escalation has to benecessarily applied from the contractually stipulated date, i., 25.06.2011.

5.3.3 It is submitted that in any case the interpretation by thelearned Arbitrator was plausible and as such was equitable also. Merelybecause some other view was possible, the High Court is not justified ininterfering with the interpretations/findings recorded by the learned soleArbitrator and that too in exercise of powers under Section 37 of theArbitration Act. It is submitted that the interpretation of the relevantclauses of the CMDA with respect to claim no.1 was actually inconsonance with the relevant clauses of the CMDA. It is submittedtherefore the High Court has erred in interfering with the award passedby the learned Arbitrator, confirmed by the learned Commercial Court.5.4 Now so far as claim no.2 under the head ‘Fixed Costs’ isconcerned, Shri Ranjit Kumar, learned Senior Advocate has heavily reliedupon clause 8.2(iii) of the CMDA. It is submitted that due to the lapseon the part of the respondent, the respondent was unable to take deliveryof the coal for the financial year 2013-14. It is submitted that there wasan event of default by the respondent as contemplated in clause 8.2(iii)of the CMDA.

5.4.1 It is submitted that due to inability of the respondent to takecoal as per the stipulated delivery schedule, the appellant had to operateits plant at sub-optimal level which resulted in incurring fixed costs. Itis submitted that it was mandatory for the coal to be lifted within 3months of production to prevent spontaneous combustion and to ensurethat there is no hazard to the plant. It is submitted that despite this, therespondent failed to take delivery.

5.4.2 It is further submitted by the learned Senior Advocateappearing on behalf of the appellant that the High Court has committedan error by not granting the said claim on the ground that the loss wasincurred by AMPL (sub-contractor) under Coal Mining ServicesAgreement to which the respondent was not party and secondly thatloss of Rs.78 crores is not substantiated beyond the CharteredAccountant’s certificate. It is further submitted by the learned SeniorAdvocate appearing on behalf of the appellant that CMDA does notprohibit appointment of AMPL as sub-contractor and in fact any suchappointment was approved by the appellant and therefore AMPL cannotbe said to be complete third party to the CMDA. It is submitted that

Atherefore when the respondent failed to lift the fixed quantity of the coaland there was delay in taking the delivery of the coal for the F.Y.2013-14, the appellant shall be entitled to the loss suffered to the extentof Rs.78 crores. It is submitted therefore the High Court has committeda grave error in disallowing the said claim.

B5.5 Now so far as claim no.3 under the head ‘Escrow Account’ isconcerned, it is submitted by the learned Senior Advocate appearing onbehalf of the appellant that the High Court has erroneously held that therespondent was entitled to make deductions from the appellant’s bills forpayments made in the escrow account. It is submitted that as such thelearned sole Arbitrator rightly came to conclusion that the stage ofCclosing of mines had not been arrived at and therefore the deductions tomake the payments into escrow account were premature. It is submittedthat the issue of deduction would arise only after passage of 30 yearsat the time of closure of the mining plant. It is further submitted that thedeposit of amount in the escrow account had arisen due to the guidelinesDissued by the Ministry of Coal, which was subsequent to the executionof the CMDA. It is submitted that therefore the said circular issued bythe Ministry of Coal would not bind the parties to the CMDA. It issubmitted therefore the High Court has committed grave error inrejecting claim no.3.

E5.6 Making the above submissions and relying upon the abovedecisions, it is prayed to allow the present appeal.

6. Shri Tushar Mehta, learned Solicitor General of India, whileopposing the present appeal, has vehemently submitted that in the factsand circumstances of the case and having found that the claims allowedFby the learned sole Arbitrator, confirmed by the learned CommercialCourt, were just contrary to the relevant clauses of the CMDA, theHigh Court is justified in reversing the award passed by the learnedArbitrator, confirmed by the learned Commercial Court.

6.1 It is vehemently submitted by the learned Solicitor GeneralGthat as per the settled proposition of law, the learned Arbitrator cannotsubstitute the terms of the contract and/or interpret the relevant clausesof the contract, which would make the relevant clauses of the contractnugatory. It is submitted that the award, by standing in completecontravention of clear and express provisions of the CMDA, is in conflictwith the public policy of India. It is submitted that in the present case,H

according to the respondent, regarding the “commencement date”, therewas only one possible interpretation that could have been accepted bythe learned arbitrator. It is submitted that however the interpretationthat has been upheld by the learned arbitrator, apart from being devoidof any reasoning in its support, is wholly incompatible with the terms ofthe CMDA and the conduct of the parties. It is submitted that anyaward, by standing in complete contravention of clear and expressprovisions of the CMDA, is in conflict with the public policy of India andtherefore is liable to be set aside. It is submitted therefore the HighCourt has rightly set aside the award in exercise of powers under Section37 of the Arbitration Act. In support of his above submissions, ShriTushar Mehta, learned Solicitor General of India has heavily relied uponthe decision of this Court in the case of ONGC v. Saw Pipes Limited,reported in (2003) 5 SCC 705; Hindustan Zinc Limited v. FriendsCoal Carbonisation, reported in (2006) 4 SCC 445 and AssociateBuilders v. DDA, reported in (2015) 3 SCC 49.

6.2 Now so far as claim no.1, namely, price escalation is concerned,it is vehemently submitted by Shri Tushar Mehta, learned Solicitor Generalthat the term “commencement date” has been defined in the agreementto have the same meaning as given to it in clause 4.5.1. It is submittedthat as per clause 4.5.3 the date of commencement is the essence to thecontract. It is submitted that as per the relevant clauses of the CMDA,the commencement date was extendable and in fact with the mutualagreement the same was extended to 25.03.2013. It is submitted thatthe term “commencement date” is defined to be the date on which theactual supply of coal begins. It is submitted that in the present case,admittedly, the date of supply of the coal is 25.03.2013, and therefore,the appellant shall be entitled to escalation in price only after the completionof 12 months from the commencement date, i.e., 25.03.2013. It issubmitted under the CMDA, the appellant is entitled to the escalation inprice in each operating year provided that the first escalation shall occuronly after completion of 12 months from the commencement date, i.e.,25.03.2013. It is submitted that thus any escalation in price is linked tothe date of commencement of coal supply. It is submitted that thus if thecoal supply is commenced as planned on 25.06.2011, the first operatingyear would have been 25.06.2011 to 31.03.2012. However, since coalsupply only commenced on 25.03.2013, the first operating year ought tohave been 25.03.2013 to 31.03.2013. It is submitted therefore that when

Athe commencement date is 25.06.2011, the first price escalation wouldbe applicable for the F.Y. 2013-14. It is submitted that however if thecommencement date is held to be 25.03.2013 (which in fact wasextended by mutual agreement), the first price escalation would occur inF.Y. 2014-15. It is submitted that it is evident from clause 5.4.3 of theCMDA that an escalation in price was to be made only after the deliveryBof coal had commenced and it is an admitted fact that actual supply ofcoal started on 25.03.2013. It is submitted therefore that there is noquestion of price escalation for F.Y. 2013-14. It is submitted that thereforethe award passed by the learned Arbitrator was just contrary to therelevant clauses of the CMDA and therefore the same is rightly setCaside by the High Court.

6.3 It is further submitted by the learned Solicitor General of Indiathat in fact the respondent lifted the full quantity of the fixed quantityand therefore there was no loss and in fact the appellant failed to adduceany evidence with respect to the actual loss either due to delay in liftingDthe coal and/or lifting the loss quantity of the coal than they agreed. Thesame is rightly set aside by the High Court.

6.4 It is further submitted by the learned Solicitor Generalappearing on behalf of the respondent that similarly the High Court hasrightly set aside the claim with respect to “escrow account”. It isEsubmitted that as such the “escrow account” was required to be openedas per the circular issued by the Ministry of Coal. It is submitted that, infact, the appellant consented to open the escrow account which as suchwas required to be opened as per the guidelines issued by the Ministryof Coal. It is submitted that therefore in fact the appellant consentedthat the money is being recovered from its running bills to be depositedFin the escrow account. It is submitted that even the same is in consonancewith clause 3.2.1 of the CMDA. It is submitted therefore the HighCourt has rightly disallowed the said claim made in escrow account.

6.5 Making the above submissions and relying upon the abovedecisions, it is prayed to dismiss the present appeal.G

7. We have heard the learned counsel for the respective partiesat length.

8. At the outset, it is required to be noted that by the impugnedjudgment and order, the Division Bench of the High Court in exercise ofits powers under Section 37 of the Arbitration Act has set aside theH

award passed by the learned Arbitrator, confirmed by the learnedCommercial Court.

Therefore, the short question which is posed for considerationbefore this Court is, whether in the facts and circumstances of the case,the Division of the High Court is justified in interfering with the awardpassed by the learned Arbitrator, confirmed by the learned CommercialCourt, in an appeal under Section 37 of the Arbitration Act?

9. While answering the aforesaid question, certain decisions ofthis Court and the law declared on the jurisdiction of the appellate Courtwhile considering the award passed by the learned Arbitrator are requiredto be considered.

9.1 In the case of Associate Builders (supra), this Court had anoccasion to consider in detail the jurisdiction of the Court to interferewith the award passed by the Arbitrator in exercise of powers underSection 34 of the Arbitration Act. In the aforesaid decision, this Courthas considered the limits of power of the Court to interfere with thearbitral award. It is observed and held that only when the award is inconflict with the public policy in India, the Court would be justified ininterfering with the arbitral award. In the aforesaid decision, this Courtconsidered different heads of “public policy in India” which, inter alia,includes patent illegality. After referring Section 28(3) of the ArbitrationAct and after considering the decisions of this Court in the cases ofMcDermott International Inc. v. Burn Standard Co. Ltd., reportedin (2006) 11 SCC 181 (paras 112-113) and Rashtriya Ispat NigamLimited v. Dewan Chand Ram Saran, reported in (2012) 5 SCC 306(paras 43-45), it is observed and held that an arbitral tribunal mustdecide in accordance with the terms of the contract, but if an arbitratorconstrues term of the contract in reasonable manner, it will not meanthat the award can be set aside on this ground. It is further observedand held that construction of the terms of contract is primarily for anarbitrator to decide unless the arbitrator construes the contract in such away that it could be said to be something that no fair minded or reasonableperson could do. It is further observed by this Court in the aforesaiddecision in paragraph 33 that when court is applying the “public policy”test to an arbitration award, it does not act as court of appeal andconsequently errors of fact cannot be corrected. possible view by thearbitrator on facts has necessarily to pass muster as the arbitrator is theultimate master of the quantity and quality of evidence to be relied upon

FGH

Awhen he delivers his arbitral award. It is further observed that thus anaward based on little evidence or on evidence which does not measureup in quality to trained legal mind would not be held to be invalid on thisscore.

9.2 Similar is the view taken by this Court in the cases of NationalBHighways Authority of India v. ITD Cementation India Limited,reported in (2015) 14 SCC 21(para 25) and Steel Authority of IndiaLimited v. Gupta Brother Steel Tubes Limited, reported in (2009) 10SCC 63 (para 29).

10. Applying the law laid down by this Court, we have to examineCwhether the Division Bench of the High Court has exceeded in itsjurisdiction in setting aside the arbitral award impugned before it.

11. For convenience, we shall deal with the impugned judgmentand order passed by the High Court claim-wise. The first claim is withrespect to “price adjustment/escalation”; the second claim is with respectDto “fixed costs” and the third claim is with respect to “escrow account”.

11.1 Now so far as the claim with respect to “price adjustment/escalation” is concerned, the learned arbitrator held that the date ofcommencement of the first operating year for the purposes of clauses5.2.2 read with 5.4.3 would be 25.06.2011 and therefore zero year forEthe purpose of price escalation has to be 2011-12. Accordingly, thelearned arbitrator considered the escalated price in F.Y. 2013-14 atRs.895/- per MT. However, according to the respondent, as the date ofcommencement was changed from 25.06.2011 to 25.03.2013, the zeroyear for the purpose of price escalation would be 2013-14. It is requiredto be noted that it is not in dispute that price escalation is permissibleFunder the contract/agreement itself and there shall be price escalationevery year as per the formulae mentioned in the agreement, commencingfrom the date of commencement. However, it is true that the initial dateof commencement, i.e., 25.06.2011 came to be extended to 25.03.2013by mutual agreement. However, the same was due to force majeure asGthere was delay of 21 months in obtaining the forest clearance andenvironmental clearance. The price was quoted in the year 2007-08,applicable from 2011. However, there was delay in obtaining the forestclearance and environmental clearance and therefore the date ofcommencement of supply came to be changed. In between there wouldbe hike in labour charges, transportation charges, etc. Though the date

of commencement of supply was extended, there was no correspondingamendment in the relevant clauses of the agreement with respect toprice escalation. There was no specific agreement that in the year2013, the appellant would supply the coal at the same price, without anyprice escalation. Therefore, considering the overall facts andcircumstances of the case and by giving cogent reasons, the learnedarbitrator interpreted the relevant clauses of the contract and specificallyheld that the date of commencement of the first operating year for thepurposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011 andaccordingly the zero year for the purpose of price escalation would be2011-12 and therefore the appellant shall be entitled to the enhancedamount as is applicable in the year 2013-14 (the price escalation). Havingconsidered the reasoning given by the learned arbitrator, we are of theopinion that the interpretation by the learned arbitrator was both possibleas well as plausible. Therefore, merely because some other view couldhave been taken, the High Court is not justified in interfering with theinterpretation made by the arbitrator which as observed was possibleand plausible. Therefore, in the facts and circumstances of the case,we are of the opinion that the High Court has clearly exceeded in itsjurisdiction in interfering with the award passed by the learned arbitratorwith respect to claim no.1 – price adjustment/escalation. At this stage,it is required to be noted that though the High Court has observed thatthe award passed by the learned arbitrator with respect to claim no.1was against the public policy, with respect, we do not see any element ofpublic policy. It was pure and simple case of interpretation of the relevantclauses of the agreement which does not involve any public policy.Therefore, we are of the opinion that the impugned judgment and orderpassed by the High Court for quashing and setting aside the award passedby the learned arbitrator with respect to claim no.1 – price adjustment/escalation cannot be sustained and the same deserves to be quashedand set aside.11.2 Now so far as claim no.2 – “fixed costs” and an amount ofRs.78 crores awarded by the learned arbitrator with respect tocompensation of loss is concerned, having gone through the relevantmaterial on record, we are of the opinion that the High Court has rightlyset aside the award passed by the learned arbitrator with respect toclaim no.2. Except the CA’s certificate, no further evidence had beenled with respect to actual loss. Considering the material on record, it is

CDEF

Aon the contrary found that in the relevant year the quantity of the coallifted by the respondent was much above the fixed quantity. Thus, theaward passed by the learned arbitrator with respect to claim no.2 wascontrary to the evidence on record and therefore is rightly set aside bythe High Court.B11.3 Similarly, even with respect to claim no.3 – “Escrow Account”is concerned, the High Court has rightly interfered with the award passedby the learned arbitrator with respect to claim no.3. It is required to benoted that the escrow account was required to be opened as per theguidelines issued by the Ministry of Coal, Government of India for thepreparation of mine closure plant. The guidelines required, inter alia, theCmining company to open an escrow account with any schedule bank.Accordingly, the respondent opened an escrow account and executedan escrow agreement. From the correspondence between the parties, itappears that even the appellant consented for opening the escrowaccount. The appellant also agreed that the amount to be deposited inDthe escrow account will be recovered by the respondent from immediatenext payment of the coal bills of the joint venture company – PKCLraised towards dispatches of coal from appellant’s coal blocks. Thus,thereafter it was not open for the appellant to claim the amount lying inthe escrow account. If the amount lying in the escrow account is returnedto the appellant, the purpose and object of opening the escrow accountEwhich was as per the guidelines of the Ministry of Coal would befrustrated. The object and purpose of opening the escrow account wasto see that the appellant company fulfils the contract as per the agreementand till the closure of the coal blocks. Therefore, the High Court hasrightly interfered with the award passed by the learned arbitrator withFrespect to claim no.3 – escrow account by observing that the reasoningis perverse or so irrational that no reasonable person could have arrivedat on the material/evidence on record. We are in complete agreementwith the view taken by the learned Division Bench of the High Court.

12. In view of the above and for the reasons stated above, theGpresent appeal succeeds in part. The impugned judgment and order passedby the High Court insofar as quashing and setting aside the award passedby the learned sole arbitrator, confirmed by the learned CommercialCourt, insofar as claim no. 1 – price adjustment/escalation is herebyquashed and set aside and the award passed by the learned arbitratorwith respect to claim no.1 is hereby restored.H

The impugned judgment and order passed by the High Court insofaras quashing and setting aside the award passed by the learned arbitratorwith respect to rest of the claims, namely, claim no.2 – fixed costs andclaim no.3 – escrow account is hereby confirmed. The present appealis partly allowed to the aforesaid extent only. However, in the facts andcircumstances of the case, there shall be no order as to costs.

Nidhi Jain

Appeal partly allowed.