CS(OS) No.1480/2003 Page 1 * IN THE HIGH COURT OF DELHI AT NEW DELHI + Reserved on : 18th May, 2010 Pronounced on: 18th May, 2010 CS(OS) No.1480/2003 GENERAL ELECTRIC INC. CANADA & ANR ...... Petitioner Through: Mr. Sandeep Sethi, Sr. Advocate with Mr. Abhinav Vashist, Advocate. VERSUS NATIONAL HYDROELECTRIC POWER CORPORATION LTD. ....Respondents Through: Mr. B. Dutta, Sr. Advocate with Mr. Sachin Datta, Advocate. AND CS(OS) No. 1475-A/1996 NATIONAL HYDROELECTRIC POWER CORPORATION LTD. …. Petitioner Through: Mr. B. Dutta, Sr. Advocate with Mr. Sachin Datta, Advocate. Versus GENERAL ELECTRIC INC. CANADA & ANR … Respondents CS(OS) No.1480/2003 Page 2 Through: Mr.Sandeep Sethi, Sr. Advocate with Mr. Abhinav Vashist, Advocate CORAM: HON’BLE MR. JUSTICE VALMIKI J.MEHTA 1. Whether the Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes % JUDGMENT VALMIKI J. MEHTA, J I.A.No. 4860/2004 in CS(OS) No. 1480/2003 1. Objections to the Award dated 7.5.1996 (impugned Award) have been filed under Sections 30 and 33 of the Arbitration Act, 1940 by means of the subject IA and which is being disposed of by means of the present judgment. The applicant- objector is also referred to as the petitioner and the non-objectors are also referred to as the claimants/respondents. 2. The impugned Award came to be passed by the Arbitration Tribunal constituted by the International Chamber of Commerce (for short „ICC‟) Paris and which Tribunal comprised of three members namely Justice Raghunandan S. Pathak, Jeffrey M. Hertzfeld and John Murray Lord Dervaird. By the impugned Award the Arbitration Tribunal accepted the claims filed by the respondents/non- objectors against the petitioner/objector. The objector is M/s National Hydro CS(OS) No.1480/2003 Page 3 Electric Power Corporation Ltd. and the claimants/non-objectors are M/s MIL Group Inc. a Corporation Incorporated under the laws of Canada and Canadian General Electric Company Ltd. a company similarly incorporated. 3. A contract dated 3.8.1984 was entered into between the objector as the owner of the project and the non-objectors as the suppliers of goods and services. The project in question was the Chamera Hydroelectric Project on the Ravi River in the State of Himachal Pradesh. Whereas Canadian General Electrical Company Ltd. (GE) provided the machinery and services with respect to Generator Core Package, MIL Group Inc. (MIL) supplied machinery and services with respect to the Turbine Core Package. The disputes between the parties arose with respect to the price variation claims made by the non-objectors against the objector with respect to the equipment and the tools supplied as also the consultancy services provided. Incidental issues also arose with respect to this main claim of price variation and which incidental issues pertain to rate of interest, existence or otherwise of force majeure conditions and the issue of limitation. The Arbitrators, as already stated above, accepted the price variation claims and also awarded interest to the non-objectors leading to the filing of the objections to the impugned Award by the petitioner herein. 4. Before this court, the same issues and arguments were raised, as was done before the Arbitration Tribunal. I will take up and decide each aspect one by one. CS(OS) No.1480/2003 Page 4 5. The issue of price variation encompasses within it, the entitlement to price variation not only with respect to the basic equipment supplied, but also with respect to tooling supplied for the purposes of installation and commissioning and also as regards consultancy services. In order to determine the issues with respect to price variation, it is also necessary to decide two defences of the objector that the claims were time barred and there were no force majeure conditions which entitled the non-objectors to supply the equipment with delay. It was contended by the objector that the delay was on the part of the non-objectors/claimants and thus they cannot get the benefit of price variation in supply of the equipment, tools and consultancy services. 6. The first issue which was taken up by the Arbitration Tribunal and is also being taken by me, is the issue with regard to the claims being time barred. It is a mis-description to call the present defence in that the claims were barred by limitation, because the defence was not the usual defence of the claims being barred as per the limitation period provided under the Limitation Act, 1963 but the defence was that the claims were not filed within the period as required under a particular clause viz Clause 15.1 of the General Terms and Conditions of the Contract and consequently, it was contended that since the claims were filed beyond the period as prescribed under Clause 15.1 , therefore, the same were CS(OS) No.1480/2003 Page 5 barred. In fact, this issue was argued by the objector as an issue touching jurisdiction of the Tribunal. On 18.2.1994, the claimants filed a request for Arbitration in accordance with Clause 15.1 of the Contract. Prior thereto on 22.10.1993 the claimants intimated their intention to submit the disputes to arbitration in accordance with Clause 15.1. At that stage it was not contended by the objector that the claims were out of time in October, 1993, and, this issue was raised for the first time only in the arbitration proceedings. 7. In order to understand the contention of the objector and the decision thereon of the Arbitration Tribunal on this aspect, it is necessary to reproduce Clause 15.1 of the contract at this stage and which reads as under:- “In the event of any controversy or claims between NHPC and any other Party pursuant to this Contract, or any alleged breach hereof, every effort will be made to attempt to settle such disputes in an equitable manner. If such settlement is not made within 120 days after the written demand therefore has been submitted by one to the other, then upon either NHPC or the affected Canadian Party giving written notice one to the other, the matter shall be submitted within the subsequent 120 day period for arbitration subject to the rules of procedure of the International Chamber of Commerce, Paris by a board of three arbitrators.” The objector contended that the demand to settle the disputes has to be submitted within an overall period of 240 days once the period begins to run i.e first 120 days to reach the settlement and the second period of 120 days thereafter starts immediately on the 121st day, till the 240th day and the matter can be CS(OS) No.1480/2003 Page 6 referred to arbitration up to the 240th day but not a day after the 240th day. It was contended that once the overall concurrent period of two periods of 120 days each expired i.e. a total period of 240 days concurrently, then, there cannot be reference of disputes to arbitration. On the basis of the aforesaid interpretation as was sought to be canvassed by the objector on the basis of Clause 15.1 it was argued that since the first request was made on 29.4.1992, the period of 240 days had expired when the request for arbitration was made on 18.2.1994. The claimants however contended that the two periods of 120 days each did not run concurrently and the second period of 120 days begins only when a notice was given by the claimants after the failure of the settlement talks between the parties. The arguments and the contentions of the claimants found favour with the Arbitration Tribunal which held as under:- “2.4 The Tribunal is satisfied that the Claimants‟ interpretation is to be preferred. The natural reading of the relevant part of the Clause is that the words “then upon either NHPC or the affected Canadian Party giving written notice one to the other “qualify the phrase” the subsequent 120 day period”; that is, the 120 days period these referred to is subsequent to the giving of the written notice just referred to. The Respondents‟ interpretation gives no content to the word “upon”. It was stated to the Tribunal by Counsel for the Respondents that claims of this type must be construed strictly. He made that submission under reference to Mustill & Boyd: Commercial Arbitration Ist Edition, 167 but the relevant passage states “Claims of this type must be construed strictly, and a claim will not be barred by lapse of time unless the provision clearly applies to the claim in question”. It is clear therefore that what the authors of Mustill & Boyd had in mind was that such claims should be construed strictly against the party seeking to rely thereon, so as not to render the claim effective to bar resort to arbitration unless it is quite clear that it must do so. CS(OS) No.1480/2003 Page 7 For the reasons already stated, the Tribunal is in any event of the view that on a proper construction of Clause 15.1 the time limit for resort to arbitration was one of 120 days which did not begin to run until the Claimants‟ letter of 22nd October, 1993. (It should be recorded that it was not in dispute before the Tribunal that that was the only written notice requiring arbitration.) The reference to arbitration was therefore timeous and this arbitration is duly based on Clause 15.1.” 8. I do not find any error in the interpretation as put forth by the Arbitrators on Clause 15.1 of the contract. The Arbitrators act within their jurisdiction when they interpret a Clause in the contract and merely because two interpretations are possible, this court is not entitled to interfere with one interpretation which is adopted by the Arbitrators, once the interpretation which is adopted is plausible and possible. Further, it is necessary that every attempt should be made to interpret a clause so that valid legal rights are not extinguished by purely technical interpretations which would thwart justice. The legislature in furtherance of this wisdom has now amended Section 28 of the Contract Act, 1872 and has added an additional sub-Section in Section 28 whereby extinguishing of the rights of a party by a Contractual Clause before the expiry of the period of limitation as provided under the Limitation Act, 1963 has been held to be void. While exercising jurisdiction under Sections 30 and 33 of the Arbitration Act, 1940, this court does not sit as a court of appeal over the Award of the Arbitrators. Unless and until the interpretation of the Arbitrators of a contractual clause is an interpretation which is CS(OS) No.1480/2003 Page 8 wholly perverse i.e. one which no reasonable man well informed of all the facts and law would have taken, courts do not interfere with the interpretation as given of the contractual clauses by the Arbitrators. 9. I, therefore, reject the contention raised on behalf of the objector that the claims filed by the claimants were barred on account of Clause 15.1 of the Contract. 10. The second defence of the objector going to the root of the matter was the objection that the claimants were themselves guilty of delay in the supply and consequently, they were not entitled to the benefit of the price variation clause. It was contended that the force majeure clause in the contract could not assist the claimants because there were no force majeure conditions. The Arbitration Tribunal has rejected this contention of the objector. In fact, the Arbitration Tribunal found that this was not an issue which was ever seriously contested and canvassed in the arbitration proceedings and in fact no evidence had been led by the objector on the issue of force majeure. In this regard, the Arbitration Tribunal while dealing with this aspect of force majeure has held as under:- “4.1……………………..However, at the stage of the hearing the Respondents sought in their later submissions to argue an entitlement to resist all the price calculations. The apparent basis upon which they sought to do so was that the delay of some three years between 1988 and 1991 which the Claimants attributed to force majeure was not entirely so. No material was put or attempted to be put before the Tribunal hearing on this issue. In these circumstances the Tribunal is not concerned with any question of delay.” CS(OS) No.1480/2003 Page 9 Before this court, it was very vehemently contended on behalf of the objector that the Arbitration Tribunal has clearly fallen into an error because the objector had clearly taken up the defence of disentitlement of the claimants to price variation and it was therefore contended that the Arbitrators could not have brushed aside this defence. It was further contended that the onus of proof to prove the existence of force majeure conditions was on the claimants and in which they miserably failed. It was thus sought to be concluded on behalf of the objector that since there were no force majeure conditions, consequently, the delay in the supply is on account of the own faults of the claimants and hence the claimants are not entitled to the benefit of the price variation clause. 11. In my opinion, this objection of the objector is also wholly misconceived. The objector in its pleadings has not disputed that there took place in August, 1988 force majeure conditions such as earth quakes and floods in India which did in fact cause a delay in the project. In its pleadings filed in the arbitration proceedings the claimants and the objector respectively stated as under:- Pleadings of claimants “52. The project experienced approximately a three year delay from August 1988 to 1990 due to force majeure conditions of earthquakes and floods in India. On 23 August, 1988 SNC/Acres duly wrote to NHPC’ stating that: “In accordance with the provisions of Article 14 of the General Terms and Conditions, we are notifying the Corporation [NHPC] that a Force Majeure condition is developing at the Chamera Hydroelectric project as a result of floods and washouts, which may affect the timely CS(OS) No.1480/2003 Page 10 commissioning of the Generating Units in accordance with the Contract” (Appendix A Exhibit 11)” As a result of the floods and washouts, the infrastructure had to be substantially reconstructed before the GE and MIL equipment could be shipped. Due to these conditions, the Claimants could not commission the equipment they had manufactured and delivered until 1991-92. The various turbines and generators and related equipment were kept in storage for approximately three years pending clean-up and repairs to the power house complex. The earthquakes and floods had thus set the project back about three years. . 53 In 1990-91, as work recommenced by the Claimants, the issue of NHPC’ inexplicably withholding payments, was revisited. It appeared that there was a dispute over the escalation calculations, but NHPC’had not expressed any particular objection.” Pleadings of Objector “52. “The Respondents deny that Force Majeure conditions because of earth quakes and floods continued for three years from August 1988 to 1990 as alleged by the Claimants. Damages to the infrastructure due to the floods in august 1988 were restored promptly and the construction activities on most of the installations in the Project had continued without interruption during the above said period. 53. The contents of this para are completely denied. As already explained in Para 52 above, the construction work at Chamera Project had not remained suspended during the period August, 1988 to 1990 as alleged by the Claimants. The construction activity on all the installations in the Project had continued uninterruptedly during the said period. The payments pertaining to the price variation claims of the Claimants were regulated as per the relevant contractual provisions and the so- called “with-held payments” as alleged by the Claimants were, in fact, the result of recoveries /set off of the over-payments made earlier by the respondents on the basis of wrong price variation of the Claimants”. (underlining added) From the aforesaid pleadings one fact is absolutely clear that there were damages to the infrastructure due to floods in August, 1988. Once force majeure CS(OS) No.1480/2003 Page 11 conditions are found to exist, if the objector contended that the situation was restored promptly, the onus of proof surely shifted upon the objector to show as to when the force majeure conditions ceased to be exist. Surely when there is damage on account of floods and earth quakes “ promptly” cannot have any meaning. In fact, it is for this reason I tend to accept the findings of the Arbitrators that this issue was not canvassed with fervor and vehemence before the Arbitrators and it is only sought to be canvassed with a lot of fervor before this court by the objector because the Award is now against the objector, and, the objector would definitely seek to use all the weapons in its armory to dislodge the Award. I, therefore, am unable to agree with the contention as raised by the counsel for the objector that the force majeure conditions did not exist or that it was for the claimants to prove the force majeure conditions. 12. That takes me to the main issue of the entitlement to price variation claims. This claim of price variation was argued and can be dealt with under two heads. First is the price variation claims on equipment and consultancy for which the same arguments apply and secondly for the price variation on tooling with respect to which different arguments were raised. Issue of price variation on equipment and consultancy 13. In order to understand and appreciate this issue, it is necessary to reproduce the relevant clauses of the contract and which read as under: CS(OS) No.1480/2003 Page 12 “2. SCOPE OF WORK 2.1 MIL Scope of Work-Turbine Core Package Marine Industries Limited will supply the Turbine Core Package as hereinafter described, and effect delivery FAS INCOTERMS of the said Turbine Core Package to NHPC on principal to principal basis, the title to which shall pass to NHPC outside India on negotiation of documents of title. 2.1.1 Turbines and Inlet Valves 3 Francis turbines, 3 electro-hydraulic governors, 3 lattice-type butterfly inlet valves including conducting turbine model tests, including submission of report, spare parts for turbines, governors and butterfly inlet valves and necessary auxiliary equipment, as per the Technical Specifications 7161-4-4500-TS-001-00 for Turbine, Governor and Auxiliaries and 7161-4-4500-TS-002-00 for Turbine Inlet Valves and Auxiliaries. The limit of the turbine supply will include extension of spiral casing up to the downstream flange of butterfly valve along with the make-up piece. 2.1.2 Gates Various gates, hoists, embedded parts and other related equipment as per the following Technical Specifications: 7161-2-4500-TS-001-00 Low Level Sluice Gates and Bulkhead Gates 7161-2-4500-TS-002-00 Diversion Tunnel Gates and Guides 7161-4-4500-TS-003-00 Draft Tube Gates and Guides 7161-3-4500-TS-002-00 Tailrace Tunnel Outlet Portal Stoplog, Guides and Follower 7161-3-4500-TS-001-00 Power Tunnel-Bulkhead Gate, Intake Gate and Embedded Parts 7161-3-4500-TS-003-00 Surge Shaft Stoplogs, Guides and Followers 2.1.3 Tools, Testing and Installation Equipment MIL will supply all special tools, testing and special installation equipment required for the installation, testing and commissioning of the Turbine Core Package as per the Technical Specifications. 2.1.4 Supervisory Services for Installation, Testing and Commissioning MIL will provide supervisory services for the management of installation and supervision of testing and commissioning of the Turbine Core Package, hereinafter described throughout this Annex B as “Consultancy Services”. The installation of the Turbine Core Package shall be the responsibility of NHPC who shall award the contract to an installation contractor under a separate contract in consultation with MIL. 2.2 CGE Scope of Work- Generator Core Package CS(OS) No.1480/2003 Page 13 Canadian General Electric Company Limited will supply the Generator Core Package as hereinafter described, and effect delivery FAS INCOTERMS of the said Generator Core Package to NHPC on principal to principal basis, the title to which shall pass to NHPC outside India on negotiations of documents of title. 2.2.1 Generators Three (3) only Type ATI, 200,000 KVA, 13800 volts, 3 phase, 50 Hz, hydro- electric generators, complete with static exciters, grounding cubicles, station tools, testing, commissioning and maintenance equipment and spare parts all as per the Technical Specifications 7161-4-4700-TS-001-00 for Generators and Excitation Systems. 2.2.2 Bus Ducts Three (3) sets Isolated bus duct equipment, each set as per the Technical Specifications 7161-4-4700-TS-002-00 for Isolated Phase Bus Duct. 2.2.3 Unit Auxiliary Transformers Three (3) sets 1250 KVA, 3 phase, 50 Hertz, indoor dry type mental enclosed unit auxiliary transformers as per the Technical Specifications 7161-4-4700-TS-005-00 for the Unit Auxiliary Transformer. 2.2.4 Tools, Testing and Installation Equipment CGE will supply all special tools, testing and special installation equipment required for the installation, testing and commissioning of the Generator Core Package as per the pertinent Technical Specifications. 2.2.5 Supervisory Services for Installation, Testing and Commissioning CGE will provide supervisory services for the management of installation and supervision of testing and commissioning of the Generator Core Package, hereinafter described throughout this Annex B as “Consultancy Services”. The installation of the Generator Core Package shall be the responsibility of NHPC who shall award the Contract to an installation contractor under a separate contract in consultation with CGE. 3. CONTRACT PRICES AND TERMS OF PAYMENT 3.1 MIL Contract Prices 3.1.1 The Contract Price for the Equipment delivered FAS Eastern Canadian Port or other port of origin, described in Articles 2.1.1, 2.1.2 and 2.1.3 hereof shall be thirty-nine million two hundred and sixty thousand CANADIAN dollars (CAN. $39,260,000.00) Net. 3.1.2 The Contract Price for the Consultancy Services described in Article 2.1.4 hereof shall be three million six hundred and forty thousand CANADIAN dollars (CAN. $3,640,000.00) Net. CS(OS) No.1480/2003 Page 14 3.1.3 The Contract Prices are subject to variation in accordance with the Price Variation as per Article 4.1 and 4.3 hererof. 3.2 CGE Contract Prices 3.2.1 The Contract Price for the Equipment delivered FAS Eastern Canadian Port or other port of origin, described in Articles 2.2.1, 2.2.2 2.2.3 and 2.2.4 hereof shall be twenty million seven hundred and eighty one thousand, six hundred and thirty nine CANADIAN dollars (CAN.$ 20,781,639.00) Net. 3.2.2 The Contract Price for the Consultancy Services described in Article 2.2.5 hereof shall be two million four hundred and eighteen thousand, three hundred and sixty one CANADIAN dollars (CAN.$ 2,418,361.00) Net. 3.2.3 The Contract Prices are subject to variation in accordance with the Price Variation as per Articles 4.2 and 4.3 hereof. 3.3 Terms of Payment NHPC shall pay or cause to be paid the Contract Price as set forth in Articles 3.1.1 and 3.2.1 hereof (referred to as FAS Contract Price in this Article 3.3) in accordance with the following terms: 3.3.1 Subject to Articles 13.1.1, 13.1.2 and 13.1.3 of the General Terms and Conditions of this Contract, 15% (fifteen percent), free of interest, of the FAS Contract Price for the supply of the Turbine Core Package and Generator Core Package shall become due and payable as advance, immediately after the signing date of the Contract and upon presentation of the invoice and advance payment bond as per Article 12.1 of this Annex B. 3.3.2 75% (Seventy-five percent) of the FAS Contract Price for the supply of the Turbine Core Package and Generator Corer Package in quarterly progress payments as per schedule of payments shown in Appendix B1 and B2 respectively to this Annex B related to the schedule of Work progress. 3.3.3 Subject to Article 19 of this Annex B, 10% (ten percent) of the FAS Contract Price on the completion of the shipment for each Unit of each Major Equipment Group due against presentation of shipping documents including warehouseman‟s receipt, dock receipt or airway bill evidencing delivery. However, where manufacturer is ready for shipment from work-shop to Port of Shipment but NHPC is not able to arrange for shipment within thirty (30) days for certain reasons at the appropriate time, NHPC shall make payment to the Manufacturer upon Manufacturer‟s readiness to Ship being established but the delivery and transfer of ownership shall pass to NHPC only as per the provisions of Article 1.(7) of the General Terms and Conditions. Each shipment for each Unit of each Major Equipment Group for which Readiness to Ship has been