M.P.Power Generation Co.Ltd.. And Anr vs Ansaldo Energia Spa And Anr

1. M.P. Power Generation Co. Ltd. formerly known as Madhya Pradesh Electricity Board (hereinafter referred to as ‘the Board’) invited proposals for refurbishment of Units 3 and 4 of the Thermal Power Plants at Amarkantak having the capacity of 120 MW by a notice inviting tender dated 24th October, 1996. A provisional Letter of Intent for refurbishment of Thermal Power Plant of 2 x 120 MW Phase–II was issued by the Board to Respondent No.1, ANSALDO Energia SPA (for short ‘the Claimant’) on 11th May, 1 1999. Thereafter, on 24th August, 1999 four Agreements were signed between the Claimants and the Board viz Overall Coordination Agreement, Offshore Supply Contract, Onshore Supply Contract and Onshore Services Contract.

2. A Bank Guarantee dated 22 nd February, 2000 was furnished by the Claimants as per Clause 9.2 (a) of the Onshore Supply Contract for Rs. 9,29,20,000/- (10 per cent of the Onshore Supply Contract price). Another Bank Guarantee was furnished by the Claimants on 23rd February, 2000 as per the stipulation in Clause 9.2(a) of the Offshore Supply Agreement for US $ 1,708,100/-. The above Bank Guarantees were given towards advance payment that was to be made by the Board. On 24 th February, 2000, a Performance Bond was executed by the ANZ Grindlays Bank Limited on behalf of the Claimants for Rs.18,48,00,000/- (10 per cent of the total Contract price) pursuant to Clause 4.1 of the Overall Coordination Agreement. The Board subsequently made advance payments of the 2 amounts equivalent to the two Bank Guarantees dated 22nd February, 2000 and 23rd February, 2000 given by the Claimant.

4. It was agreed between the parties that the Zero Date would be 9th March, 2000. Thereafter, there was exchange of correspondence and several meetings held between the Claimant and the Board for resolution of certain issues. In response to a 3 letter written by the Board on 15 th June, 2001, the Claimant wrote to the Board on 21 st June, 2001 to treat the Agreement as expired. The Claimant stated in the said letter that it was suspending the performance of the Agreement. There was a reference to violation of a fundamental condition of the Contract i.e. non-furnishing of a Letter of Comfort from the Power Finance Corporation as provided in Clause 5.6 of the Onshore Supply Contract. The Claimant further complained of a misrepresentation of the warranty contained in Clause 19.2 (vii) of both the Onshore and Offshore Supply Contracts and Clause 20.2 of the Onshore Services Contract.

5. The Board invoked the three Bank Guarantees on 23rd June, 2001. Thereafter, the Board proceeded to issue a notice for default as provided in Clause 16.3 of the Offshore and Onshore Supply Contracts and Clause 17.3 of Onshore Services Contracts on 29 th August, 2001. The Board complained of substantial breach of Agreement on the part of the Claimant. The Claimant was given 30 days’ time for curing the 4 defaults. The Claimant responded by submitting a representation on 8th January, 2000. Not satisfied with the explanation given by the Claimant, the Board terminated the contract. The Claimant raised a dispute which was referred to Arbitration. The Arbitral Tribunal passed an award in favour of the Claimant on 23rd September, 2004 in the following terms:

6. The Petition filed by the Board under Section 34 of the Arbitration and Conciliation Act, 1996 (for short “the Act”) was allowed by the learned 7 th Additional District Judge, Jabalpur and the award dated 23 rd September, 2004 of the Arbitral Tribunal set aside. The learned Additional District Judge upheld the findings of the Arbitral Tribunal on Issues No.1 to 7. Breach of contract by the Board in view of (a) violation of a fundamental condition of the contract i.e., not furnishing Letter of Comfort from Power Finance Corporation and, (b) misrepresentation by the Board in Clause 19.2 (vii) of the agreements as concluded by the Arbitral Tribunal were approved by the learned Additional District Judge. However, the Learned Additional District Judge found fault with the award pertaining to Bank Guarantees and the amounts specified in Exhibit- GG of the Claim Petition. On the basis of the opinion that the Arbitral Tribunal had acted in excess of its jurisdiction in granting relief to the Claimant under the above heads, the learned Additional District Judge set aside the award.

9. As stated above, the Contract between the Claimant and the Board pertains to refurbishment of Units 3 and 4 of the Amarkantak Thermal Power Station located in Shadol District of Madhya Pradesh. Four Agreements in all were entered into between the Claimant and the Board. An Overall Coordination Agreement was executed on 24th August, 1999 which provided for three other Agreements which are :

4.2 ANSALDO shall deliver to MPEB a Bank Guarantee (as per attachment to this Co-ordination Agreement in the sum of twelve and one half per cent (12 ½ %) of the Total Contract Price to guarantee the successful achievement of the Guarantee Parameters (Indemnity Bank Guarantee). Such Bank Guarantee shall be delivered to MPEB on the date ANSALDO submits its initial monthly invoice for payment to MPEB. The validity of such Bank Guarantee shall expire on the earlier of:

Letter of Comfort and Waiver

Non-Supply of Documents and Misrepresentation

33 Illustrations

(a) .....

7 (2003) 12 SCC 91 36 functioning of the Units only on the basis of visual inspections. We are afraid that we cannot agree with the submission of Sh.Dave on the point of misrepresentation as we find no good reason to differ from the view taken by the Arbitral Tribunal. Ext.GG- Value of the Equipments Supplied and Works Performed

Ext. FF- Refund of amounts of Bank Guarantees

32. The Bank Guarantee given on 24.02.2000 was a Performance Bank Guarantee and the Claimant is entitled for return of the amount for which the Bank Guarantee was given. The Arbitral Tribunal, however, failed to take notice of the fact that the other two Bank Guarantees were given for the amounts to be advanced by the Board. In fact, the Board had advanced the said amounts to the Claimants. We are of the opinion that the Claimant is not entitled for return of the amounts involved in 39 the Bank Guarantees dated 22.02.2000 and 23.02.2000 as they were towards the amounts advanced by the Board. The rejection of the claim pertaining to the damages mentioned in Ex. HH of the statement of claim which includes loss of profit, over-heads and loss of commercial opportunities clearly indicates that the Arbitral Tribunal never intended to grant any damages to the Claimant. The claims allowed by the Arbitral Tribunal pertained only to the return of the Claimants’ money involved in the Bank Guarantees and the amounts actually spent by the Claimants.

Conclusion

33. We uphold the award of the Arbitral Tribunal with the modification that the Claimants are not entitled for the amounts involved in the Bank Guarantees dated 22.02.2000 and 23.02.2000 given by the Claimants.

35. For the afore-stated reasons, the appeals are dismissed with the above modification.