Delhi High Court M/S. Jayaswal Neco Industries Ltd. vs M/S. Goyal Mg Gases Pvt. Ltd. on 5 April, 2018 * Reserved on: 21.02.2018 Pronounced on: 05.04.2018 + FAO(OS) (COMM) 21/2018, CAV.99/2018, C.M. APPL.4549 4551/2018 M/S JAYASWAL NECO INDUSTRIES LTD ..... Appellant Through : Sh. Sandeep Sethi, Sr. Advocate with Sh. Devashish Bharuka, Sh. Ravi Bharuka and Sh. Sameer Rohatgi, Advocates. versus M/S GOYAL MG GASES PVT LTD .....Respondent Through : Sh. Parag. P. Tripathi, Sr. Advocate with Sh. Simran Mehta and Ms. Mishika Bajpai, Advocates. HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE A.K. CHAWLA MR. JUSTICE S. RAVINDRA BHAT % Facts 1. The appellant has approached this Court under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 ("the Act") impugning the order of the learned Single Judge dated 21.12.2017 („impugned order‟), which dismissed its application under Section 34 confirming the arbitral award dated 04.08.2017 read with correction order dated 15.09.2017 (collectively the "award"). 2. The relevant facts of the case are that the respondent (herefter "Goyal MG") agreed to lease its 70 TPD (tonne per day) Air Separation Plant to the FAO(OS)(COMM) 21/2018 Page 1 of 19 appellant (hereafter "Jayaswal"). The Agreement was for 10 years from the date of commissioning of the plant; lease charges were capped at ₹30 lakhs per month plus taxes. In terms of Article 6(f) of the Agreement, lease charges were payable on pro rata basis from the date of plant commissioning till the date of performance test. On 14.03.2003, the parties entered into another agreement pursuant to which Goyal MG undertook to operate and maintain the Plant. The O&M Agreement was for a period of 10 years from the date of commissioning of the Plant, and O&M charges were ₹11 lakhs per month plus taxes. The plant was commissioned in March 2005, and, therefore, the Lease Agreement and the O&M Agreement would both continue till March 2015. 3. Under Article 15 of the Lease Agreement and Article 3 of the O&M Agreement, the Plant was required to produce 2040 Nm3/hour of oxygen and power consumption had to be limited to 0.82KWH/Nm3. Between 23.12.2009 and 27.08.2013, Jayaswal wrote several letters requesting Goyal MG to (a) take the performance test, (b) repair the new oxygen compressor and replace the old oxygen compressor, and (c) replace the main air compressor motor which was prone to frequent breakdowns. In these letters, Jayaswal claimed that it was suffering significant losses due to short supply of oxygen and excess consumption of electricity. This includes letters by Jayaswal dated 23.12.2009 and 13.05.2011, requesting Goyal MG to take the performance test. On 24.07.2012, Goyal MG replied stating that it had been continuously requesting Jayaswal to conduct the performance test since 2006. Goyal MG disavowed any responsibility for excess power consumption because Jayaswal had failed to conduct a performance test. On FAO(OS)(COMM) 21/2018 Page 2 of 19 12.06.2014, Goyal MG asserted that the performance test would be deemed to have been conducted because the Plant was producing required quantity and quality of oxygen. Goyal MG also relied on the Minutes of the Meeting dated 04.02.2015, in this regard. The other issue was with respect to oxygen compressors. Jayaswal informed Goyal MG on 07.01.2012 that the old oxygen compressor was causing loss of ₹3.2 lakhs per month due to excess consumption of 8000 units of electricity. On 19.05.2012, Jayaswal informed the Goyal MG that its 70 TPD Plant was consuming as much electricity as its 100 TPD Plant. On 18.09.2013, Goyal MG requested Jayaswal to pay ₹75 lakhs for purchase of new oxygen compressor, and it agreed that the amount could be adjusted against the insurance claim or any outstanding amount due at the end of the lease period. However, on 16.12.2013, Goyal MG stated that Jayaswal was responsible for replacement of burnt equipment pursuant to Article 18(b) of the O&M Agreement. Through letter dated 26.12.2013, Jayaswal insisted that compressor replacement was Goyal MG‟s responsibility, and it placed reliance on Articles 2(d) and 16 of the O&M Agreement to support its position. Finally, on 27.03.2014, Goyal MG agreed to an arrangement whereby Jayaswal would provide ₹75 lakhs as an interest free advance for the purchase of the new compressor and this advance would be repaid at the time of sale of the Plant. Goyal MG specified that it had agreed to this arrangement to mai