Judgment Name: Kanti Bijlee Utpadan Nigam Limited v. Paltech Cooling Towers and Equipments Ltd.

Citation: O.M.P. (COMM.) 154 of 2021.

Court: The High Court of Delhi

Coram: Vibhu Bakhru, J.

Date: 5th July 2022.

Keywords: Section 34, Arbitration & Conciliation Act, 1996 (the ‘A&C Act’), Invocation of Bank Guarantee, Section 17, Arbitration & Conciliation Act

Overview

A Single-Judge bench of the Delhi High Court adjudicated that a lumpsum amount cannot be awarded against specified claims without adjudicating the claim pending before the Tribunal. Consequentially, the Award was set aside by the High Court.

Facts

Kanti Bijlee Utpadan Nigam Limited (“KBUNL”) and Paltech Cooling Towers and Equipments Ltd. (“PCTEL”) entered into a Supply and Service Contract dated 10th September 2011 for a complete induced draft cooling tower package for Muzaffarpur Thermal Power Project Stage-II.

The time limit for completion of the said project was determined to be two years from the date of the commencement of the project, i.e., 9th August 2011. As per the terms of the agreement, two Bank Guarantees (“BGs”) amounting to ₹4,54,23,600/- were furnished by PCTEL, which were to be released upon successful completion of the Performance Guarantee Test (“PGT”). However, 17 extensions were granted to PCTEL for the completion of the project, which remained unfulfilled even after the lapse of such extensions.

On 21st April 2016, the majority of the work regarding the thermal power project was deemed complete by PCTEL for which it requested KBUNL for a Certificate of Completion of Facilities (“COF”) and the release of its dues. KBUNL was apprehensive of issuing the COF, however, after multiple meetings, the Petitioner granted a provisional COF to PCTEL provided that the outstanding work including the PGT would be completed. Thereafter, the Respondent again defaulted in performing the PGT from the date of completion and requested the Petitioner to release its BG. According to the Petitioner, since the work remained incomplete and the PGT had also not been fulfilled, they would not be releasing the BG.

Eventually, the PGT was conducted, which revealed a temperature shortfall in Cooling Towers 3 and 4 of the project which were requested to be rectified by the Petitioner and conduct a PGT for the release of its BG. Upon the Petitioner’s failure to release the BG, PCTEL filed a Writ Petition in the Delhi High Court, seeking the release of the Performance-based BGs which was eventually dismissed by the Court by directing the parties to approach the appropriate dispute resolution forum. Subsequently, another Civil Suit was filed by PCTEL which was dismissed as withdrawn by the Court with the liberty to avail the appropriate legal remedy.

Thereafter, the dispute was adjudicated by an arbitral tribunal in light of the relevant provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”). The Respondent filed a claim before the Tribunal amounting to Rs 45,95,10,542/- which was met with a counterclaim filed by the Petitioners; however, the latter was rejected summarily by the Tribunal on account of it merely being “a counterblast to PCTEL’s claim at a belated stage”. Subsequently, the Tribunal awarded a lumpsum amount of Rs 5.5 Cr. to the Respondent after dismissing its application under Section 33 of the A&C Act seeking clarity on whether the amount awarded was inclusive of the Performance-based BG.

The said Award had come up in appeal against an application filed under Section 34(4) of the A&C Act by the Petitioner on the ground that the Tribunal failed to accord any reason towards calculating the quantum of the amount awarded to the Respondent.

Issue

Whether an arbitral tribunal can award a lumpsum amount as opposed to specified claims without even adjudicating the claims?

Analysis

At the outset, the Court expressed its displeasure with the way in which the Tribunal drafted the impugned Award. It noted that of the 152 pages in the Award, 142 were a mere reproduction of the parties’ pleadings with only the last 3 pages being indicative of the Tribunal’s findings and reasoning. It then went on to discern the validity of the Award, particularly critiquing the Tribunal’s failure to adjudicate the dispute before making its decision. Essentially, the High Court’s decision can be summed up as follows:

i. The Tribunal incorrectly assessed the period of completion of the project under the assumption that the repeated granting of extensions by KBUNL alluded to its incorrect assessment of the period required for completion of the work.

ii. The COF issued to the Petitioner was to enable PCTEL for collecting certain amounts notwithstanding that certain works required completion. According to the Tribunal, the COF issued was casual in nature but later observed the same to be a conditional one in KBUNL’s statement of defence, making the Tribunal’s finding ex-facie erroneous.

iii. With regard to the quantum of claims and counterclaims filed by the parties, a lumpsum award of Rs 5,50,00,000/- in favour of the Respondent was erroneous since there is no basis for such quantification. The Tribunal, in order to “meet the ends of justice”, had passed the aforesaid arbitrary award. Such an award of an arbitrary amount without the adjudication of the dispute between the parties is unsustainable.

iv. Additionally, an application under Section 34(4) seeking clarification as to whether the Award was inclusive of the BG would be unmerited when the Award itself is devoid of any basis for calculation.

Conclusion:

The Court was of the opinion that the Tribunal’s decision towards awarding a lumpsum amount despite the existence of specified claims was an incorrect one. An award cannot be passed merely to meet the ends of justice. Instead, the dispute ought to be properly adjudicated between the parties and the quantum of the award should be properly calculated by the Tribunal.

[This case note has been authored by Mayannk Sharma, an Editor at Mapping ADR.]