Case: PARSA KENTA COLLIERIES LTD Vs. RAJASTHAN RAJYA VIDYUT UTPADAN NIGAM LTD

purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011 and therefore zero year for the purpose of price escalation has to be 2011-12. Accordingly, the learned arbitrator considered the escalated price in F.Y. 2013¬14 at Rs.895/- per MT. However, according to the respondent, as the date of commencement was changed from 25.06.2011 to 25.03.2013, the zero year for the purpose of price escalation would be 2013-14. It is required to be noted that it is not in dispute that price escalation is permissible under the contract/agreement itself and there shall be price escalation every year as per the formulae mentioned in the agreement, commencing from the date of commencement. However, it is true that the initial date of commencement, i.e.,25.06.2011 came to be extended to 25.03.2013 by mutual agreement. However, the same was due to force majeure as there was a delay of 21 months in obtaining the forest clearance and environmental clearance. The price was quoted in the year 2007¬ 08, applicable from 2011. However, there was a delay in obtaining the forest clearance and environmental clearance and therefore the date of commencement of supply came to be changed. In between there would be hike in labour charges, transportation charges, etc. Though the date of commencement of supply was extended, there was no corresponding amendment in the relevant clauses of the agreement with respect to price escalation. There was no specific agreement that in the year 2013, the appellant would supply the coal at the same price, without any price escalation. Therefore, considering the overall facts and circumstances of the case and by giving cogent reasons, the learned arbitrator interpreted the relevant clauses of the contract and specifically held that the date of commencement of the first operating year for the purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011 and accordingly the zero year for the purpose of price escalation would be 2011¬12 and therefore the appellant shall be entitled to the enhanced amount as is applicable in the year 2013-14 (the price escalation). Having considered the reasoning given by the learned arbitrator, we are of the opinion that the interpretation by the learned arbitrator was both possible as well as plausible. Therefore, merely because some other view could have been taken, the High Court is not justified in interfering with the interpretation made by the arbitrator which as observed was possible and plausible. Therefore, in the facts and circumstances of the case, we are of the opinion that the High Court has clearly exceeded in its jurisdiction in interfering with the award passed by the learned arbitrator with respect to claim no.1 – price adjustment/escalation. At this stage, it is required to be noted that though the High Court has observed that the award passed by the learned arbitrator with respect to claim no.1 was against the public policy, with respect, we do not see any element of public policy. It was pure and simple case of interpretation of the relevant clauses of the agreement which does not involve any public policy. Therefore, we are of the opinion that the impugned judgment and order passed by the High Court for quashing and setting aside the award passed by the learned arbitrator with respect to claim no.1 – price adjustment/escalation cannot be sustained and the same deserves to be quashed and set aside.11.2 Now so far as claim no.2 – ?fixed costs? and an amount of Rs.78 crores awarded by the learned arbitrator with respect to compensation of loss is concerned, having gone through the relevant material on record, we are of the opinion that the High Court has rightly set aside the award passed by the learned arbitrator with respect to claim no.2. Except the CA?s certificate, no further evidence had been led with respect to actual loss. Considering the material on record, it is on the contrary found that in the relevant year the quantity of the coal lifted by the respondent was much above the fixed quantity. Thus, the award passed by the learned arbitrator with respect to claim no.2 was contrary to the evidence on record and therefore is rightly set aside by the High Court.11.3 Similarly, even with respect to claim no.3 – ?Escrow Account? is concerned, the High Court has rightly interfered with the award passed by the learned arbitrator with respect to claim no.3. It is required to be noted that the escrow account was required to be 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 open an escrow account with any schedule bank. Accordingly, the respondent opened an escrow account and executed an escrow agreement. From the correspondence between the parties, it appears that even the appellant consented for opening the escrow account. The appellant also agreed that the amount to be deposited in the escrow account will be recovered by the respondent from immediate next payment of the coal bills of the joint venture company – PKCL raised towards dispatches of coal from appellant?s coal blocks. Thus, thereafter it was not open for the appellant to claim the amount lying in the escrow account. If the amount lying in the escrow account is returned to the appellant, the purpose and object of opening the escrow account which was as per the guidelines of the Ministry of Coal would be frustrated. The object and purpose of opening the escrow account was to see that the appellant company fulfils the contract as per the agreement and till the closure of the coal blocks. Therefore, the High Court has rightly interfered with the award passed by the learned arbitrator with respect to claim no.3 – escrow account by observing that the reasoning is perverse or so irrational that no reasonable person could have arrived at on the material/evidence on record. We are in complete agreement with the view taken by the learned Division Bench of the High Court.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]8. At the outset, it is required to be noted that by the impugned judgment and order, the Division Bench of the High Court in exercise of its powers under Section 37 of the Arbitration Act has set aside the award passed by the learned Arbitrator, confirmed by the learned Commercial Court.For convenience, we shall deal with the impugned judgment and order passed by the High Court claim¬wise. The first claim is with respect to ?price adjustment/escalation?; the second claim is with respect to ?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 of commencement of the first operating year for the purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011 and therefore zero year for the purpose of price escalation has to be 2011-12. Accordingly, the learned arbitrator considered the escalated price in F.Y. 2013¬14 at Rs.895/- per MT. However, according to the respondent, as the date of commencement was changed from 25.06.2011 to 25.03.2013, the zero year for the purpose of price escalation would be 2013-14. It is required to be noted that it is not in dispute that price escalation is permissible under the contract/agreement itself and there shall be price escalation every year as per the formulae mentioned in the agreement, commencing from the date of commencement. However, it is true that the initial date of commencement, i.e.,25.06.2011 came to be extended to 25.03.2013 by mutual agreement. However, the same was due to force majeure as there was a delay of 21 months in obtaining the forest clearance and environmental clearance. The price was quoted in the year 2007¬ 08, applicable from 2011. However, there was a delay in obtaining the forest clearance and environmental clearance and therefore the date of commencement of supply came to be changed. In between there would be hike in labour charges, transportation charges, etc. Though the date of commencement of supply was extended, there was no corresponding amendment in the relevant clauses of the agreement with respect to price escalation. There was no specific agreement that in the year 2013, the appellant would supply the coal at the same price, without any price escalation. Therefore, considering the overall facts and circumstances of the case and by giving cogent reasons, the learned arbitrator interpreted the relevant clauses of the contract and specifically held that the date of commencement of the first operating year for the purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011 and accordingly the zero year for the purpose of price escalation would be 2011¬12 and therefore the appellant shall be entitled to the enhanced amount as is applicable in the year 2013-14 (the price escalation). Having considered the reasoning given by the learned arbitrator, we are of the opinion that the interpretation by the learned arbitrator was both possible as well as plausible. Therefore, merely because some other view could have been taken, the High Court is not justified in interfering with the interpretation made by the arbitrator which as observed was possible and plausible. Therefore, in the facts and circumstances of the case, we are of the opinion that the High Court has clearly exceeded in its jurisdiction in interfering with the award passed by the learned arbitrator with respect to claim no.1 – price adjustment/escalation. At this stage, it is required to be noted that though the High Court has observed that the award passed by the learned arbitrator with respect to claim no.1 was against the public policy, with respect, we do not see any element of public policy. It was pure and simple case of interpretation of the relevant clauses of the agreement which does not involve any public policy. Therefore, we are of the opinion that the impugned judgment and order passed by the High Court for quashing and setting aside the award passed by the learned arbitrator with respect to claim no.1 – price adjustment/escalation cannot be sustained and the same deserves to be quashed and set aside.11.2 Now so far as claim no.2 – ?fixed costs? and an amount of Rs.78 crores awarded by the learned arbitrator with respect to compensation of loss is concerned, having gone through the relevant material on record, we are of the opinion that the High Court has rightly set aside the award passed by the learned arbitrator with respect to claim no.2. Except the CA?s certificate, no further evidence had been led with respect to actual loss. Considering the material on record, it is on the contrary found that in the relevant year the quantity of the coal lifted by the respondent was much above the fixed quantity. Thus, the award passed by the learned arbitrator with respect to claim no.2 was contrary to the evidence on record and therefore is rightly set aside by the High Court.11.3 Similarly, even with respect to claim no.3 – ?Escrow Account? is concerned, the High Court has rightly interfered with the award passed by the learned arbitrator with respect to claim no.3. It is required to be noted that the escrow account was required to be 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 open an escrow account with any schedule bank. Accordingly, the respondent opened an escrow account and executed an escrow agreement. From the correspondence between the parties, it appears that even the appellant consented for opening the escrow account. The appellant also agreed that the amount to be deposited in the escrow account will be recovered by the respondent from immediate next payment of the coal bills of the joint venture company – PKCL raised towards dispatches of coal from appellant?s coal blocks. Thus, thereafter it was not open for the appellant to claim the amount lying in the escrow account. If the amount lying in the escrow account is returned to the appellant, the purpose and object of opening the escrow account which was as per the guidelines of the Ministry of Coal would be frustrated. The object and purpose of opening the escrow account was to see that the appellant company fulfils the contract as per the agreement and till the closure of the coal blocks. Therefore, the High Court has rightly interfered with the award passed by the learned arbitrator with respect to claim no.3 – escrow account by observing that the reasoning is perverse or so irrational that no reasonable person could have arrived at on the material/evidence on record. We are in complete agreement with the view taken by the learned Division Bench of the High Court.