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M/s. Carbonaire Industries Madras Private Limited, Chennai v/s M/s. Express Infrastructure Private Limited, Chennai

    Arb.O.P (Com.Div) No. 322 of 2022
    Decided On, 18 July 2022
    At, High Court of Judicature at Madras
    By, THE HONOURABLE MR. JUSTICE M. SUNDAR
    For the Petitioner: M.S. Krishnan, Senior Counsel for Prasad Vijayakumar, Advocate. For the Respondent: ------


Judgment Text
(Prayer: Petitioner filed under Section 34 (2)(b)(ii) and 34(2A) of Arbitration and Conciliation Act, 1996 to set aside the award passed by the Arbitral Tribunal dated 21.12.2021 passed by sole arbitrator.)

1. A unsuccessful claimant before an 'Arbitral Tribunal' ['AT' for the sake of brevity] constituted by a sole Arbitrator is the protagonist of the captioned 'Arbitration Original Petition' ('Arb.OP' for the sake of brevity), which has been presented in this Court on 17.03.2022 assailing an 'arbitral award dated 21.12.2021' [hereinafter 'impugned award' for the sake of convenience and clarity].

2. Mr.M.S.Krishnan, learned Senior Advocate instructed by Mr.Prasad Vijayakumar, counsel on record for the petitioner in the captioned Arb.OP is before this Court.

3. Short facts shorn of granular particulars will suffice as this is a Section 34 legal drill. Short facts are that the petitioner (hereinafter 'CIMPL' denoting 'Carbonaire Industries Madras Private Limited') and the respondent (hereinafter 'EIPL' denoting 'Express Infrastructure Private Limited') entered into a 'Power Purchase Agreement dated 13.06.2019' (hereinafter 'PPA' for the sake of brevity); that this PPA is the nucleus of the case on hand; that under PPA, CIMPL agreed to supply 12 MW of electricity to EIPL per annum. The term of the PPA was initially upto 31.03.2022; that the parties were at liberty to extend the term for such additional periods; that there is a lock in period of 12 months from the commencement date; that commencement date has been defined under Clause 2.10 of PPA as date on which the energy supply is commenced; that this Court is informed that the commencement date is 26.07.2019; that therefore the lock in period was upto 25.07.2020; that Corona virus pandemic unfurled in this part of the world on 23.03.2020; that none could portend or presage the Corona virus pandemic (hereinafter 'Covid-19' for the sake of convenience); that owing to Covid-19, the Government of Tamil Nadu issued an Executive Order i.e., G.O.Ms.No.152, Health and Family Welfare (P1) Department dated 23.03.2020 inter alia directing lock down of all shops, commercial establishments etc.,; that EIPL is running a Mall; that PPA and supply/purchase of electrical energy under PPA was for such Mall; that Mall suffered a shut down owing to lock down; that EIPL wrote to CIMPL on 10.05.2020 inter alia saying they are invoking Force Majeure clause from the date of lockdown announced by the Government of Tamil Nadu (this Court is able to gather from the impugned award that this communication was marked as Ex.C21 before the AT); that it has become necessary to cull out this from the impugned award as list of exhibits and list of witnesses have not been given at the tail end of the impugned award which is customarily done; that this Court is informed that oral evidence was also let in by one party, namely, EIPL and one finance personnel was examined as a witness on the side of EIPL; that in and by 10.05.2020 communication, EIPL made it clear that it is invoking the Force Majeure clause (as alluded to supra); that Clause 13 of PPA is Force Majeure clause; clause 13.3 is an adumbration of exclusions to Force Majeure clause; that Clause 13.5 (a) talks about invocation of Force Majeure by a party which intends to stake a claim under Force Majeure; that post Ex.C21 (10.05.2020) communication, EIPL sent a termination notice dated 23.06.2020 terminating PPA; that this termination notice was met with an elaborate reply from CIMPL i.e., a communication dated 06.07.2020; that this Court is informed that this termination notice dated 23.06.2020 and 06.07.2020 communication were all before the AT as exhibits and therefore, they form part of the records of AT; that therefore this Court is not embarking upon the cross reference of exhibit numbers by sifting through the impugned award; that CIMPL made claims before the AT under five heads and those five heads are a) Monies said to be used for energy supply between April 2020 and May 2020, b) Loss of income for the period from June 2020 to December 2020 (CIMPL found another consumer is the burden of the song), c) Liquidated damages for termination of PPA when the lock in period was operating, d) Notional loss and e) costs; that this Court is informed that one of the five claims, namely, notional loss was given up by CIMPL before the AT; that EIPL as respondent before AT, made a counter claim and the counter claim is to the effect that a sum of Rs.4.23 lakhs as paid by EIPL to TANGEDCO towards open access charges has to be deducted from Rs.6.43 lakhs payable by EIPL for the energy consumed in the months of April and May 2020; that documentary and oral evidence in the manner mentioned supra (elsewhere in this order) were let in; that after full contest, the impugned award which addresses itself to 8 issues, negatived all the four heads of claims of CIMPL and allowed the counter claim of EIPL; that CIMPL has now come before this Court under Section 34 of of 'The Arbitration and Conciliation Act, 1996 (Act No.26 of 1996)', which shall hereinafter be referred to as 'A and C Act' for the sake of brevity assailing the impugned award; that five heads of claim have been grouped together under one issue by AT, namely issue (e) which talks about whether the claimant (EIPL) is entitled to relief as claimed in issues A, B, C, D and E; that captioned Arb.OP is listed before this Section 34 Court in the Admission Board; that the captioned Arb.OP was tested to see whether it passes muster qua admission; that this exercise was done inter alia in the light of Rule 8 of 'The Madras High Court (Arbitration) Rules, 2020' [hereinafter 'MHC Arb. Rules' for the sake of convenience and clarity] which are a set of Rules made by Madras High Court in exercise of its powers under Section 82 of A and C Act; that what unfurled in the Admission Board will be narrated infra.

4. This Court having set out the factual matrix in a nutshell and having set the stage to capture and reproduce what unfurled in the Admission Board, now proceeds to consider the focussed submissions made by learned Senior Counsel.

5. Notwithstanding very many grounds and several averments made in the captioned Arb.OP pleadings, learned Senior counsel made focussed and pointed submissions on two points and they are as follows:

a) The PPA, more particularly, Clause 13.5(a) of PPA makes it clear that the parties had agreed that a contracting party who claims Force Majeure should put the other party on 7 days notice but this has not been done;

b) That Clause 13.3 of PPA is an adumbration of exclusion to Force Majeure and correspondence between the parties make it clear that EIPL is claiming economic hardship, this is an exclusion under 13.3.(b)(iii) and this has been overlooked by AT.

6. The petition and submissions make it clear that in legal parlance the challenge to the impugned award is three fold and they are:

a) Conflict with public policy under Section 34(2)(b)(ii) (clause (ii) of Explanation 1 thereat) of A and C Act;

b) Patent illegality under Section 34(2A) of A and C Act; and

c) Contrary to the covenants in the contract i.e., PPA and therefore, an infraction of Section 28(3) of A and C Act.

7. This Section 34 Court now proceeds to carefully consider the arguments in the light of the aforementioned backdrop.

8. As regards the first point pertaining to 7 days notice, the argument is, the Executive Order of the State Government of Tamil Nadu was made only on 23.03.2020 vide G.O.Ms.No.152 and EIPL should have sent notice under Clause 13.5(a) of PPA within 7 days therefrom. The impugned award proceeds on the basis that the 10.05.2020 (Ex.C21) communication makes it clear that EIPL has expressed its intention to take umbrage under Force Majeure and termination notice dated 23.06.2020 has been viewed from this perspective. It is a question of when a party decides to take umbrage under Force Majeure. It is not a question of when Force Majeure unfurled. As Force Majeure has unfurled on a given date, that by itself need not necessarily become the reckoning date for computing the 7 days for a contracting party to give the notice. The date when a contracting party comes to the conclusion that it would take umbrage under Force Majeure is relevant. Therefore, the view taken by the AT is clearly a plausible view.

9. The next point turns on Clause 13.3(b)(iii) which talks about economic hardship being an exclusion to Force Majeure. A careful perusal of the entire Force Majeure clause, namely Clause 13 of PPA makes it clear that it no doubt gives an adumbration of exclusion to Force Majeure in 13.3 but a careful reading of the PPA brings to light that economic hardship by itself cannot be pleaded as Force Majeure. If economic hardship is a consequence of a Force Majeure, that may necessarily qualify under Clause 13.3 of PPA. In the case on hand, Covid -19 situation, which none could portend or presage, led to the lock down and consequent shut down of the Mall resulting inter alia in economic hardship. Therefore, economic hardship is not Force Majeure. Economic hardship is a consequence of the Force Majeure. In this view of the matter, the argument that economic hardship is an exclusion qua Force Majeure does not hold water. To put it differently, clause 13 being beyond exclusion is clearly a plausible view. As long as it is a plausible view, the question of this Court interfering in an impugned award does not arise. The reason is, oft-quoted Ssangyong case law [Ssangyong Engineering and Construction Company Limited Vs. National Highways Authority of India reported in (2019) 15 SCC 131]. This Court will interfere judicially qua an impugned award in a legal drill under Section 34 only when the view of the AT is implausible and so implausible that it shocks the conscience of this Court. The reason is, Section 34 is neither an appeal nor a revision. It is not even a full-fledged judicial review. It is a mere challenge to an award within the pigeon holes adumbrated under Section 34. If a protagonist of a Section 34 is able to demonstrate to the Section 34 Court that his claim fits into, nay fits snugly into one or more of the pigeon holes, the protagonist will be entitled to have the arbiral award dislodged.

10. In the light of the discussion and dispositive reasoning thus far, it is clear that there is nothing to demonstrate that the impugned award fits into any one of the grounds adumbrated in Section 34. Some more elaboration on this aspect of the matter may be necessary. As already alluded to supra, one of the three grounds of attack qua impugned award is conflict with public policy which is ingrained in Section 34(2)(b)(ii) of A and C Act. What is public policy and what are the three facets of public policy was explained by Hon'ble Supreme Court in oft quoted Associate Builders case [Associate Builders Vs. Delhi Development Authority reported in (2015) 3 SCC 49]. The three facets of public policy as set out by Hon'ble Supreme Court in Associate Builders case law are a) judicial approach, b) 'Natural Justice Principles' ('NJP' for brevity), and c) Irrationality/perversity. Not only were the three facets of public policy set out in Associate Builders case law but tests for three facets were also laid down by Hon'ble Supreme Court. The test as regards judicial approach is fidelity of judicial approach, as regards NJP, it is audi alteram partem and as regards irrationality/perversity, the test is the time honoured Wednesbury principle of reasonableness. It may not be necessary to delineate much qua this as Associate Builders case law which was rendered on 25.11.2014 {prior to 23.10.2015 amendments to A and C Act} as Associate Builders principles were explained by Hon'ble Supreme Court in Ssangyong case law which was rendered on 08.05.2019 post 23.10.2015 amendments. In Ssangyong case law, vide Paragraphs 34 to 36 (SCC OnLine report), it was made clear that Paragraphs 28 and 29 of Associate Builders case law which in turn refers to Paragraph 35 and 38 to 40 Western Geco [ONGC Vs. Western Geco International Ltd., reported in (2014) 9 SCC 263] is no more available to a legal drill under Section 34(2)(b)(ii) owing to Explanation 2 thereat. If that is the case, the sequitur is we are left only with NJP. NJP is nobody's case in the case on hand. Therefore, it may not be necessary to go to that facet of conflict with public policy. In and by Paragraph 41 of Ssangyong case law i.e., Paragraph 41 as in the SCC OnLine report, it was also made clear that perversity is no more available as a ground qua public policy plea. This means that what can be argued for perversity is now available only qua patent illegality under Section 34(2A) of A and C Act. This Paragraph 41 of Ssangyong case law refers to Paragraphs 31 and 32 of Associate Builders. To be noted, reference to Paragraphs in Associate Builders case law is from SCC report as reported in (2015) 3 SCC 49. Once an argument is moved into patent illegality under Section 34(2A), the proviso kicks in i.e., proviso to Section 34(2A). Proviso forbids two legal exercises, i) it forbids reappreciation of evidence and ii) it forbids setting aside an award merely on the ground of erroneous application of law. Therefore, after a detailed analysis, in Ssangyong case law, Hon'ble Supreme Court made it clear that post 23.10.2015 amendments to A and C Act under the scheme of A and C Act, a review of an impugned award on merits is impermissible.

11. This takes this Court to the argument predicated on Section 28(3). As regards Section 28(3), the same was also amended on 23.10.2015. Prior to 23.10.2015, it opened with expression 'in all cases' whereas post 23.10.2015, it opens with the expression 'while deciding and making of an award'. Therefore, the test is to look at the impugned award on hand and see whether or not AT has taken into account terms of the contract and trade usage applicable to the transaction. Of these two facets, trade usage applicable to a transaction is nobody's case in the captioned Arb.OP and therefore we are concerned only with the terms of the contract. Coming to the terms of the contract, we are only concerned with Clause 13.5 which talks about notification of a contracting party which intends to claim Force Majeure and Clause 13.3(b)(iii) which talks about economic hardship, as an exclusion. This Court has already delineated supra that economic hardship by itself may not qualify as Force Majeure and economic hardship is a consequence or sequitur of Force Majeure and therefore, it cannot be gainsaid that AT has not taken into account terms of the contract. On the contrary, the impugned award deals with Clause 13.3 of PPA in its letter and spirit.

12. Be that as it may, there is another interesting aspect of the matter which needs to be taken into account. In the reply to the termination notice alluded to supra, namely the reply dated 06.07.2020 sent by CIMPL, more particularly in paragraph 10 thereat, it has been clearly articulated that EIPL has resorted to the termination clause within the lock in period and there is a clear reference to Liquidated Damages under Clause 16.2.1.

13. A careful perusal of the Force Majeure clause i.e., Clause 13 makes it clear that there is pregnant silence regarding whether it would operate during the lock in period. After all, Force Majeure is something which none can portend or presage and therefore, it may or may not occur within the lock in period. It flows from this position that the view taken by AT that Force Majeure by itself clearly presupposes unforeseen circumstances is stating the obvious and in this view of the matter findings of AT regarding modification qua contracting parties lacks logic. Therefore, as regards this argument also, this Court finds that it does not find any ground for judicial intervention qua the impugned award.

14. In this regard, this Court deems it appropriate to refer to the impugned award and more particularly Paragraph 47 thereat where there is a reference to 10.05.2020 (Ex.21) notice, Paragraph 44 where there is a reference to the Force Majeure and economic crisis aspect being an exception and paragraph 31 where the economic hardship aspect has been tested.

15. One argument which can be described as burden of the song qua the petitioner is, if only the petitioner i.e., CIMPL had been put on notice regarding the Force Majeure as per Clause 13.5(a) of PPA, it would have scheduled its work in such manner that it would have minimised the loss. In the considered view of this Court, in the light of Ex.C21 and the language in which it is couched, this argument is clearly a non-starter. It is a one page communication and therefore, this Court deems it appropriate to scan and reproduce Ex.C21 and the same is as follows:


16. Though there are no paragraph numbers, the second paragraph of the aforementioned communication makes it clear that EIPL has mentioned in no uncertain terms that it is invoking Force Majeure clause and a reference to revenue loss can hardly cut ice qua the campaign of the petitioner against the impugned award. However, a careful reading of aforementioned Ex.C21 will make it clear that EIPL has referred to huge revenue loss due to pandemic. Therefore, pandemic is the Force Majeure and revenu

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e loss is the consequence. Revenue loss itself has not been claimed as Force Majeure which appears to be forbidden by Clause 13.3(b)(iii). 17. Before concluding, it is also necessary to remind oneself that Section 34 of A and C Act is a delicate balance between sanctity of finality of arbitral awards ingrained in Section 35 read with minimum judicial intervention principle ingrained in Section 5 of A and C Act on the one side and judicial review which is one of the bedrock facets of Rule of Law on the other. This makes Section 34 a default provision. In this default provision, the scope of judicial intervention is very minimal. Hon'ble Supreme Court has repeatedly held that a Section 34 exercise is by way of a summary procedure. This is vide oft-quoted Fiza Developers case law [Fiza Developers and Inter-Trade Private Limited Vs. AMCI (India) Private Limited reported in (2009) 17 SCC 796]. Fiza Developers principle was held to be a step in the right direction by Hon'ble Supreme Court in Emkay Global case being Emkay Global Financial Services Ltd., v. Girdhar Sondhi reported in (2018) 9 SCC 49. To be noted, this Fiza Developers and Emkay Global principles have been the inspiration for this Court [Madras High Court] to bring in Clause 8.5 of practice note that forms part of Madras High Court Arbitration Rules. 18. Aforementioned Clause 8.5 reads as follows: '8.Challenge to an award under Section 34 of the Act: 8.1 ..... 8.2 ..... 8.3 ..... 8.4 ..... 8.5 Proceedings under Section 34 of the Act shall be disposed of by a summary procedure.' 19. It may not be necessary to elaborate much on this aspect of the matter as captioned Arb.OP fails to pass muster qua admission owing to the narrative, discussion and dispositive reasoning set out supra. The sequitur is captioned Arb.OP is dismissed. There shall be no order as to costs.
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