IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. Arb.Appeal No.2 of 2009 Judgment reserved on: January 04, 2011. Decided on: May 24, 2011. UHL Power Co. Ltd. ...Appellant. Versus State of H.P. ...Respondent. For the appellant: Mr.D.N.Sawhney, Sr.Advocate with Mr.Ajay Kumar, Advocate. For the respondent: Mr.J.S.Bhogal, Sr.Advocate with Mr.Ashwani K. Sharma, Advocate Coram Hon’ble Mr.Justice R.B.Misra, Judge. Hon’ble Mr.Justice Kuldip Singh, Judge. Whether approved for reporting?1 Yes. R.B.Misra, Judge: The present arbitration appeal has been preferred under Section 37 of the Arbitration & Conciliation Act, 1996 (for short referred as ‘Act’ herein-after) read with Rule 7 of the High Court of Himachal Pradesh (Arbitration & Conciliation) Rules, 2002 against the judgment and order dated 16.12.2008, passed by learned Single Judge in Arbitration Case No.55 of 2005 (State of Himachal Pradesh Whether the reporters of the local papers maybe allowed to see the judgment? 2 versus UHL Power Company Ltd.) preferred under Section 34 of the ‘Act’, whereby, learned Single Judge has set aside the award dated 5.6.2005, passed by learned Arbitrator in favour of the appellant and has accepted and allowed the counter claim of the respondent / State of Himachal Pradesh amounting to `7.95 Crores along with interest at the rate of 9% per annum till realization. 2. The brief facts necessary for adjudication of present appeal are that by an advertisement dated 29.10.1990, the State of Himachal Pradesh (in short ‘Respondent / State’) invited offers for the development of ten hydro-electric projects in the State of Himachal Pradesh in consonance to the policy guidelines issued by the Government of India. These projects were to be developed on the following sites: Sr. No. Project Location 1. Larji Mandi District 2. Uhl-III Mandi District 3. Ghanvi Kinnaur District 4. Baspa-II Kinnaur District 5. Parbati-III Kullu District 6. Bhamwari-Sunda Shimla District 7. Malana Kullu District 8. Neogal Kangra District 9. Khauli Kangra District 10. Hibra Chamba District 3 In reference to the above advertisement, the Ballarpur Industries Limited (in short ‘BILT’) submitted its offer for development of either the Larji or Uhl-III hydro – electric power generation project on 24.11.1990. The company was called for negotiation / discussion on 16.4.1991. The company submitted profile of their group of companies i.e. Thapar Group on 15.5.1991. A Memorandum of Understanding ( in short called ‘MOU’) was signed between BILT and the Respondent / State on 10.2.1992. Under the ‘MOU’ executed between the parties, Appellant was to examine the feasibility of a 70 MW Hydro Electric plant on Uhl, a tributary of the river Beas in the State of Himachal Pradesh. It appears, the Appellant conducted surveys for five and a half years and through detailed project reports divulged that the capacity of the project was actually 100 MW, thereby enhancing the value of the project by over 40%. 3. The parties executed an Implementation Agreement (in short called ‘IA’ herein-after) on 22.8.1997 to implement the understandings arrived at under the ‘MOU’. The relevant Clauses of ‘IA’ are extracted as below:- Clause 1 Statement of implementation of Project: “Both the parties i.e. the Government and the Company agree that the Project shall be implemented, subject to the terms mentioned in the Agreement, as per the provisions of the DPR as approved by the Government / GOI. The parties also agree 4 that the MOU signed on 10.2.1992 shall stand lapsed as on today the twenty second August, 1997. …. …. 2.2 “Agreement” shall mean this Agreement together with all its appendices and annexures and any amendments thereto made in accordance with the provision herein contained….. … 2.7 “Construction Schedule” means the schedule of construction to be mutually agreed between the Company and the Government prior to Financial Closure of the Project which shall then form part of this Agreement and shall be attached as APPENDIX – ‘B’. Clause 3 Grant of Rights / Permissions by Government. 3.1 The Government agrees to grant necessary permission to the Company to establish, own, operate and maintain the Project and sell power from the Project for a period of 40 (forty) years only from the Commercial Operation Date (COD). However, the Government would have the option to grant a further extension for a maximum period of twenty years after renegotiation of terms and conditions of this Agreement. 3.2 The Government shall provide all possible assistance and cooperate with the Company for expediting various statutory / non-statutory clearances, required for the implementation of the Project, from various competent authorities of the Board / State Government / Central Government. The Government shall promptly forward all relevant proposals received from the Company to concerned GOI authorities. The basic responsibility for obtaining these sanctions shall, however, rest with the Company only. 5 3.3 The Government shall permit the Company in accordance with the Mining Rules prevalent in the State to collect and use boulders, stone, shingles, limestone and other building materials, except precious and semi – precious minerals, from the river beds and / or from the land acquired for or transferred to or leased out to the Company for the purpose of implementation of the Project, on payment of royalty payable as per the Government rules / rates in force from time to time. In case any object of archaeological importance is found by the Company or by any of its employees / contractors / sub- contractors during the course of the implementation of the Project, the Company shall arrange to hand over the same to the Government free of cost. 4.1 Within one year from the Effective Date, the Company shall start the construction of the Project after meeting the major requirements e.g.:- a) Obtain techno-economic clearance from CEA. b) Obtain environmental clearance from GOI, Ministry of Environment and Forest (MOEF); c) Identify the purchaser of power and finalize Power Purchase Agreement(s) d) Commence detailed designs of Project components / structures. e) Finalize selection of Engineering, Procurement and Construction (EPC) contractor / executing agencies, if required. f) Establish site office and take over the site from Government including the Government land or private land already acquired by Government on lease etc., for the purpose of carrying out preparatory works. g) Achieve Financial Closure. 6 Both parties acknowledge that fulfillment of activities enumerated at 4.1(a), 4.1(b) of this clause and clause 16.8 of this Agreement are not totally under the control of the Company, therefore, if the fulfillment of these activities is delayed beyond three (3) months from Effective Date, the stipulated period of one year, shall be extended by one month for each month of delay in fulfillment of any of the activities enumerated at 4.1(a), 4.1(b) and 16.8 provided that the total of the monthly extensions shall not exceed twelve (12). 4.2 The Government shall constitute a multi disciplinary Committee comprising representatives of the Government, the Board and the Company to monitor the progress of the Project periodically. The Committee shall meet quarterly. The Committee shall monitor the progress of steps taken/ being taken by the Company as per requirements mentioned in clause 4.1 and also implementation of the Project as per Schedule mentioned in clause 2.7 above. The Committee shall make its recommendations to the Government. 4.3 The Company shall furnish within three (3) months of obtaining all of:- (i) techno – economic clearance from CEA (ii) Environmental clearance from GOI, Ministry of Environment and Forests (MOEF) and (iii) the separate Agreement in accordance with Clause 16.8 a security amounting to 0.5% of the Project Cost as per approved DPR subject to a maximum of Rs.5 Crores (Rs.5 Crores) in the shape of an irrevocable Bank Guarantee issued in favour of Secretary (MPP & Power), Government of Himachal Pradesh. In case the Company fails to take effective steps to meet the requirements under clause 4.1 to the satisfaction of 7 the Government and / or fails to commence the construction of the Project as per Clause 4.1 above, the Agreement shall be terminated after affording due opportunity to the Company and security amount deposited by the Company shall stand forfeited in favour of the Government and the Project Site shall revert back to the Government without any liability and / or compensation whatsoever to be paid by the Government. The security deposit shall be converted into Performance Guarantee after the commencement of the Project and shall be valid up to the COD of the Project, as a guarantee for successful completion of the Project within the Construction Schedule. 4.4 The Bank Guarantee amounting to Rs.5 Lacs submitted to the Government in pursuance to Clause 17 of MOU, shall be kept valid till the Company furnishes the security deposit as per clause 4.3 above. Clause 5 Land: 5.1 The Government shall acquire, at the request and expense of the Company within the provisions of Land Acquisition Act, 1894, such private lands within the State of Himachal Pradesh as may be required by the Company and as considered appropriate by the Government for the implementation of the Project. The Company shall also be allowed to acquire such land through direct negotiations with the owners in accordance with the prevailing laws, rules and regulations in the State. ……. … …. ……. … …. 8 Clause 14: Government Rights on Water: 14.1 The Company agrees to provide to the Government or its Agent, free energy from the Project at the inter – connection point as under:- i) For the first 12 years from the Commercial Operation Date 15% of the Deliverable Energy generated from The Project ii) For the next 28 years 20% of the Deliverable Energy generated from the Project. No wheeling / transmission charges shall be payable for free energy from generating station to the inter connection point. The remaining power from the Project can be disposed of by the Company to any other consumer except those located in the State of Himachal Pradesh. The Company shall also be permitted to utilize the power for their captive use for the new industry to be set up in the State. … …. …. 16.8 Subject to provisions made in Clause 14.1, separate Agreement, specifying various modalities for the generation, evacuation of power, maintenance of the Project, wheeling charges to be levied by either party for the use of transmission system of the other party to evacuate power, modalities for supply of free power, metering and miscellaneous related technical issues, will be signed within three (3) months of this Agreement. … … … Clause 20 Arbitration: If any dispute or difference of any kind whatsoever shall arise between the parties hereto in connection with or arising out of this Agreement (and whether before or after the termination or breach of this Agreement), such dispute or 9 difference, other than a dispute or difference referred to CEA under Clause 18.3 of this Agreement, shall be referred to and settled by arbitration as thereinafter provided in accordance with the Arbitration and Conciliation Act, 1996 but the existence of any dispute or difference or the initiation or continuance of the arbitration proceedings shall not postpone or delay the performance by the Parties of their respective obligations pursuant to this Agreement. The matter would be referred to arbitration of three (3) Arbitrators. The disputing Parties shall appoint one (1) Arbitrator each and the Chief Justice of the High Court of Himachal Pradesh shall, at the request of the parties, appint a person, who is or has been a Judge of the High Court or who is eligible to be appointed as the Judge of the High Court, act as the presiding arbitrator of the Arbitral Tribunal.” 4. The provisions of above Clause 4.1 of ‘IA’ indicate, it was the appellant’s responsibility to obtain the techno economic clearance (in short ‘TEC’ hereinafter) from the Central Electricity Authority and clearance from the Ministry of Environment & Forest (in short ‘MOEF’ clearance). The ‘TEC’ would not be obtained unless ‘MOEF’ clearance was obtained and ‘MOEF’ clearance was not be granted unless forest clearance had been obtained from the Respondent / State. However, Appellant was unable to obtain the State forest clearance and could not obtain ‘MOEF’ clearance and ‘TEC’. 5. A show cause notice dated 1.1.1999 was issued to the Appellant for not taking effective steps to meet the requirement under Clause 4.1 of ‘IA’ to the satisfaction of Respondent / State in terms of the provisions under Clause 4.3 of ‘IA’, indicating as 10 to why the ‘IA’ be not terminated for not obtaining the ‘TEC’ and MOEF clearance within one year from the date of execution of the ‘IA’. In response thereto, the Appellant through its response dated 25.1.1999 pointed out that the necessary steps required on its part have already been taken but because of non-issuance of forest clearance, the Appellant was not able to obtain ‘MOEF’ clearance as well as techno economic clearance. The Appellant’s request for personal hearing was, however, ignored. The Appellant was informed vide letter dated 1.3.1999 that ‘IA’ has been terminated on 22.8.1987. Even the request of the appellant made through its letter dated 1.3.1999 to recall the termination of ‘IA’ was not allowed by the respondent / State, as such, being aggrieved appellant resorted to clause 20 of ‘IA’, providing provision for appointment of Arbitrator comprising of three members. On the joint request dated 11.7.2000 of respondent / State and appellant to refer the dispute to the sole Arbitrator, an agreement was arrived at in the proceedings, namely, arbitration case No.76 of 2002, where, in this Court vide its order dated 10th January, 2003 was pleased to appoint a learned Arbitrator. 6. The appellant claimed before learned Tribunal as below:- “(a) An arbitral award awarding a sum of `232,36,25,242.35 in favour of the claimants and against the respondent; (b) an arbitral award granting interest pendent elite at the rate of 18% per annum on the aforesaid amount from the date of the filing of the case till realization of the awarded amount; and 11 (c) Costs of the arbitration and / or incidental expenses thereto.” The appellant / claimant has also claimed damages as follows:- (i) `26,08,89,107.35 as expenses; (ii) `20 crores as general damages; and (iii) `186.27 crores for loss of expected profits. In support of its claim, the appellant filed as many as fifty one bound documents / volumes, whereas, the respondent / State filed its reply along with forty five documents along with a counter claim for `7.95 Crores as loss of revenue. The appellant filed a rejoinder to the reply, the examination-in-chief was through affidavits and witnesses were cross-examined by the parties. 7. After adjudication, learned Arbitrator / learned Tribunal passed an award dated 5.6.2005 as follows:- (i) The claimant company is entitled to `260,889,107.35 on account of expenses incurred with the claim with interest @ 9% from the date of filing claim before this Tribunal i.e. from 12.5.2003 till the date of award; (ii) The claimant company is also entitled to general damages of Rs.15 crore with interest @ 9% from the date of filing claim before this Tribunal i.e. from 12.5.2003 till the date of award. (iii) The claimant company is also entitled for cost of Rs.15.50 lakhs in view of above 12 discussions from the respondent state along with interest @ 9% from the date of filing claim before this Tribunal i.e. from 12.5.2003 till the date of award. (iv) The claim regarding Rs.186,27,36,135.00 as claimed by the claimant company towards loss of profits was declined against the claimant company. (v) Interest @ 18% on the awarded amount from the date of award till payment as mentioned in Section-37 (7) (b) of the ‘Act’ was awarded. No interest was allowed if the entire awarded amount on different counts was paid within six months, failing which interest @ 18% per annum was allowed to be charged from the date of passing of award till the payment of the awarded amount. Learned Arbitrator / Tribunal also awarded interest from the filing of the claim till the date of the award @ 9% per annum and 18% per annum from the date of the award till realization. The total amount awarded by learned Tribunal / Arbitrator was `48,92,20,579.49. 8. The respondent / State challenged above award by way of Application No.55/05 preferred under Section 34 of the ‘Act’ with following prayers:- “This application may kindly be allowed and after calling for the records of learned Arbitrator namely Justice R.K.Mahajan (Retd.) Resident of 38-C, Land No.1, Phase 1, Sector 2, New Shimla, the impugned Award passed by learned Arbitrator 13 (Annexure P-1) be set aside. It is further prayed that in the facts and circumstances of the case, the petitioner may be allowed its costs in these proceedings and such other and further relief as may be considered just and proper and justice be done.” 9. Learned Single Judge allowed the above application of respondent / State vide impugned judgment and order dated 16.12.2008 setting aside the award dated 5.6.2005 thereby allowing the respondent’s counter claim amounting to `7.95 Crores with interest at the rate of 9% till the date of award. 10. Being aggrieved, the appellant has preferred the present ‘Arbitration Appeal’ mainly on the following grounds:- (i) The terms of a contract between the parties cannot be re-interpreted. (ii) Evidences cannot be re-appraised. (iii) When a contract is open to two plausible interpretations, the view of learned Arbitrator accepting one or the other view, cannot be set aside. (iv) Reasonableness of reasons cannot be challenged. Learned Single Judge cannot sit as an appellate authority to adjudicate the application of respondent / State preferred under Section 34 of ‘Act’ and decide the same on merits as an appeal. (v) Learned Single Judge cannot set aside an award merely because it would have taken a different view, and even a wrong conclusion cannot be challenged. 14 11. In support of the submissions that the terms of a contract between the parties cannot be re-interpreted by the Court as it is the function of Arbitrator, the following judgments have been referred and relied upon for and on behalf of the appellant:- A.M. Mair & Co Versus Gordhandas Sagarmull, AIR (38) 1951 SC 9; M/s.Allen Berry & Co. Pvt. Ltd. Versus The Union of India, New Delhi, 1971 (1) SCC 295; M/s.Kapoor Nilokheri Co-op Diary Farm Society Ltd. Versus Union of India & Others, (1973) 1 SCC 708; U.P. Hotels & Others Versus U.P. State Electricity Board, (1989) 1 SCC 359; M/s.Sudarsan Trading Co. Versus Government of Kerala & Another, (1989) 2 SCC 38; Food Corporation of India Versus Joginderpal Mohinderpal & Another, (1989) 2 SCC 347; Hindustan Construction Co Ltd. Versus State of Jammu & Kashmir, (1992) 4 SCC 217; H.P.State Electricity Board Versus R.J.Shah & Company, (1999) 4 SCC 214; U.P.State Electricity Board Versus Searsole Chemicals Ltd., ( 2001) 3 SCC 397; Indu Engineering & Textiles Ltd. Versus Delhi Development Authority, (2001) 5 SCC 691; State of U.P. Versus Allied Constructions, (2003) 7 SCC 396; Continental Construction Ltd Versus State of U.P., (2003) 8 SCC 4; Pure Helium India (P) Ltd. Versus Oil & Natural Gas Commission, (2003) 8 SCC 593; D.D. Sharma Versus Union of India, (2004) 5 SCC 325; BOC India Ltd. Versus Bhagwati Oxygen Ltd., (2007) 9 SCC 503; Madhya Pradesh Housing Board Versus 15 Progressive Writers & Publishers, (2009) 5 SCC 678 and G.Ramachandra Reddy & Company Versus Union of India & Another, (2009) 6 SCC 414. 11(A) As per A.M.Mair & Co. (supra), once the dispute is found to be within the scope of the arbitration clauses, it is not part of the province of the Court to enter into the merits of the dispute. 11(B) As per Kapoor Nilokheri Co-op Diary Farm Society Ltd. (supra), in a case of arbitration, where the appellants had specifically stated that their claims were based on the agreement and on nothing else and all that the Arbitrator had to decide was the effect of an agreement between the appellant and the respondent, the Arbitrator had really to decide question of law, i.e. interpretation of the documents, the agreement, however, the decision of Arbitrator is not open to challenge. 11(C) As per U.P. Hotels & Others (supra), award is not open to Court’s interference on the ground of the view being wrong. 11(D) As per Hindustan Construction Co. Ltd. (supra), the Arbitrator is competent to award the interest for the period from the date of award to date of payment. The Court cannot deduce reasons for the award from the record accompanying the award and examine whether those reasons were erroneous or not by placing its own interpretation on relevant clauses of the contract. 16 11(E) As per R.J.Shah & Company (supra), The Court has to examine some documents including the contract and reference of the dispute to Arbitrator for the limited purpose of determining whether Arbitrator had jurisdiction or not. 11(F) As per U.P.State Electricity Board (supra), there is no scope for reappraisal of the matter by Court as an appellate authority if the Arbitrator has applied his mind to the pleadings by evidence adduced before him and the terms of contract. 11(G) As per Indu Engineering & Textiles Ltd. (supra), unless view of Arbitrator is vitiated by a manifest error on the face of the award or is wholly improbable or perverse, it is not open to the Court to set aside the award. Arbitrator is a Judge appointed by the parties and, as such, an award passed by him is not to be lightly interfered with. 11(H) While taking such similar view, Hon’ble Supreme Court has observed in D.D.Sharma’s case (supra) that the interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Once it is held that the construction of an agreement fell for consideration of the arbitrator, the determination thereupon shall not ordinarily be interfered with. The court’s jurisdiction in this behalf is merely to see whether the arbitrator has exceeded his jurisdiction or not. 17 11(I) In Bhagwati Oxygen Ltd. (supra), Hon’ble Supreme Court has observed that Arbitrator had considered all aspects of the matter including the terms of the contract and all materials on record and had come to a conclusion of fact and when Arbitrator has taken a plausible view on interpretation of the contract, court cannot set aside award on the ground of misconduct of arbitral proceedings. 11(J) In G.Ramachandra Reddy & Company (supra), Hon’ble Supreme Court has observed that interpretation of a contract may fall within the realm of the arbitrator. The court while dealing with an award would not re-appreciate the evidence. An award containing reasons also may not be interfered with unless they are found to be perverse or based on a wrong proposition of law. If two views are possible, it is trite, the court will refrain itself from interfering. 12. In support of the submission that the evidence cannot be re-appraised, the following decisions have been referred and relied upon:- Union of India Versus Bungo Steel Furniture (P) Ltd., (1967) 1 SCR 324; Hindustan Tea Co. Versus K.Sashikant Co. & Another, 1986 (Supp) SCC 506; Municipal Corporation of Delhi Versus M/s.Jagan Nath Ashok Kumar & Another, (1987) 4 SCC 497; Puri Construction Pvt. Ltd. Versus Union of India, (1989) 1 SCC 411; Trustees of the Port of Madras Versus Engineering Constructions Corporation Limited, (1995) 5 SCC 531; State of Bihar & Others Versus Hanuman Mal Jain (1997) 18 11 SCC 40; Arosan Enterprises Ltd Versus Union of India & Another, (1999) 9 SCC 449; Indu Engineering Textiles Ltd. (supra); Bhagawati Oxygen Ltd. Versus Hindustan Copper Ltd., (2005) 6 SCC 462; McDermott International Inc Versus Buran Standard Co. Ltd. & Others, (2006) 11 SCC 181; BOC India Ltd.(supra); Kwality Manufacturing Corporation Versus Central Warehousing Corporation, (2009) 5 SCC 142; Madhya Pradesh Housing Board versus Progressive Writers & Publishers (supra); G.Ramachandra Reddy & Company (supra);