# PSA SICAL TERMINALS PVT. LTD v. THE BOARD OF TRUSTEES OF V.O. CHIDAMBRANAR PORT TRUST TUTICORIN AND OTHERS

- **Citation:** [2021] 5 S.C.R. 408
- **Court:** Supreme Court of India
- **Decided:** 2021-07-28
- **Case number:** Civil Appeal Nos. 3699-3700 of 2018
- **Bench:** R. F. Nariman, B. R. Gavai
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/psa-sical-terminals-pvt-ltd-v-the-board-of-trustees-of-v-o-chidambranar-port-35333
- **Pages:** 50

## Headnote

Arbitration and Conciliation Act, 1996: s.34 - Application
for setting aside award - Scope of interference - Held: In an
application under s.34, the court is not expected to act as an
appellate court and re-appreciate the evidence - The scope of
interference would be limited to grounds provided under s.34 of the
Arbitration Act - The interference would be so warranted when the
award is in violation of "public policy of India", which has been
held to mean "the fundamental policy of Indian law" - A judicial
intervention on account of interfering on the merits of the award
would not be permissible - However, the principles of natural justice
as contained in s.18 and 34(2)(a)(iii) of the Arbitration Act would
continue to be the grounds of challenge of an award - The ground
for interference on the basis that the award is in conflict with justice
or morality is now to be understood as a conflict with the "most
basic notions of morality or justice" - It is only such arbitral awards
that shock the conscience of the court, that can be set aside on the
said ground - An award would be set aside on the ground of patent
illegality appearing on the face of the award and as such, which
goes to the roots of the matter - However, an illegality with regard
to a mere erroneous application of law would not be a ground for
interference - Equally, re-appreciation of evidence would not be
permissible on the ground of patent illegality appearing on the face
of the award.
Arbitration and Conciliation Act, 1996: s.34 - Arbitral
Tribunal passed the award in favour of SICAL holding that there
was a change in law and thereby granting reliefs as prayed for by
SICAL - It directed conversion of Container Terminal of TPT from
royalty model to revenue share model - The finding of the Arbitral
Tribunal was based on a premise that when TPT entered into a
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contract with SICAL there was an existing policy, which provided
royalty to be factored into the cost while fixation of tariff and that
subsequently, the GoI changed its policy on 29th July, 2003 thereby
providing that royalty payment/revenue sharing will not be factored
into/taken into account as cost for fixation/revision of tariff by TAMP;
and that there was subsequent change in policy on 31st March, 2005
by which part of royalty was permitted to be factored into the cost -
According to the Arbitral Tribunal, there was a change in policy,
which amounted to change in law, which, in turn, adversely affected
SICAL - Award of Arbitral Tribunal challenged by TPT before the
District Judge - District Judge dismissed the s.34 petition - TPT
successfully challenged before the High Court - Aggrieved SICAL
filed instant appeals - Held: When the bid document was notified
and when SICAL submitted its bid and LoI was issued to it, there
were no guidelines in vogue - Even the guidelines of February
1998 do not provide for royalty being factored as cost while fixation
of tariff - On the contrary, the tariff order of 1999 specifically
clarifies that it has left the royalty issue to be decided by TPT and
the GoI - It has specifically clarified that the approval by TAMP
should not be interpreted to be amounting to any implicit approval
of royalty-related issue - Further, the tariff order issued on 20th
September, 2002 specifically rejects the claim of SICAL for factoring
any royalty as cost while tariff/price fixation - SICAL has challenged
the said order before the High Court by way of writ petition, which
petition has been allowed - It is also not in dispute, that on account
of interim order passed by the High Court dated 8th November, 2002,
SICAL is still continuing to charge at rates notified in the 1999
tariff order - In this scenario, the finding of the Arbitral Tribunal,
that there was a law when the Agreement was entered into between
the parties, which provided royalty as a pass-through and that the
said law has been changed for the first time in 2003 and
subsequently again changed in 2005, is a fin

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SUPREME COURT REPORTS
[2021] 5 S.C.R.
 [2021] 5 S.C.R. 408
408
PSA SICAL TERMINALS PVT. LTD.
v.
THE BOARD OF TRUSTEES OF V.O. CHIDAMBRANAR PORT
TRUST TUTICORIN AND OTHERS
(Civil Appeal Nos. 3699-3700 of 2018)
JULY 28, 2021
[R. F. NARIMAN AND B. R. GAVAI, JJ.]
Arbitration and Conciliation Act, 1996: s.34 - Application
for setting aside award - Scope of interference - Held: In an
application under s.34, the court is not expected to act as an
appellate court and re-appreciate the evidence - The scope of
interference would be limited to grounds provided under s.34 of the
Arbitration Act - The interference would be so warranted when the
award is in violation of "public policy of India", which has been
held to mean "the fundamental policy of Indian law" - A judicial
intervention on account of interfering on the merits of the award
would not be permissible - However, the principles of natural justice
as contained in s.18 and 34(2)(a)(iii) of the Arbitration Act would
continue to be the grounds of challenge of an award - The ground
for interference on the basis that the award is in conflict with justice
or morality is now to be understood as a conflict with the "most
basic notions of morality or justice" - It is only such arbitral awards
that shock the conscience of the court, that can be set aside on the
said ground - An award would be set aside on the ground of patent
illegality appearing on the face of the award and as such, which
goes to the roots of the matter - However, an illegality with regard
to a mere erroneous application of law would not be a ground for
interference - Equally, re-appreciation of evidence would not be
permissible on the ground of patent illegality appearing on the face
of the award.
Arbitration and Conciliation Act, 1996: s.34 - Arbitral
Tribunal passed the award in favour of SICAL holding that there
was a change in law and thereby granting reliefs as prayed for by
SICAL - It directed conversion of Container Terminal of TPT from
royalty model to revenue share model - The finding of the Arbitral
Tribunal was based on a premise that when TPT entered into a
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contract with SICAL there was an existing policy, which provided
royalty to be factored into the cost while fixation of tariff and that
subsequently, the GoI changed its policy on 29th July, 2003 thereby
providing that royalty payment/revenue sharing will not be factored
into/taken into account as cost for fixation/revision of tariff by TAMP;
and that there was subsequent change in policy on 31st March, 2005
by which part of royalty was permitted to be factored into the cost -
According to the Arbitral Tribunal, there was a change in policy,
which amounted to change in law, which, in turn, adversely affected
SICAL - Award of Arbitral Tribunal challenged by TPT before the
District Judge - District Judge dismissed the s.34 petition - TPT
successfully challenged before the High Court - Aggrieved SICAL
filed instant appeals - Held: When the bid document was notified
and when SICAL submitted its bid and LoI was issued to it, there
were no guidelines in vogue - Even the guidelines of February
1998 do not provide for royalty being factored as cost while fixation
of tariff - On the contrary, the tariff order of 1999 specifically
clarifies that it has left the royalty issue to be decided by TPT and
the GoI - It has specifically clarified that the approval by TAMP
should not be interpreted to be amounting to any implicit approval
of royalty-related issue - Further, the tariff order issued on 20th
September, 2002 specifically rejects the claim of SICAL for factoring
any royalty as cost while tariff/price fixation - SICAL has challenged
the said order before the High Court by way of writ petition, which
petition has been allowed - It is also not in dispute, that on account
of interim order passed by the High Court dated 8th November, 2002,
SICAL is still continuing to charge at rates notified in the 1999
tariff order - In this scenario, the finding of the Arbitral Tribunal,
that there was a law when the Agreement was entered into between
the parties, which provided royalty as a pass-through and that the
said law has been changed for the first time in 2003 and
subsequently again changed in 2005, is a finding based on 'no
evidence' - Had the Arbitral Tribunal perused the tariff orders of
1999 and 2002, it would have found that in the 1999 tariff order
TAMP has specifically observed that its approval of the tariff should
not be construed as its implicit approval of royalty-related issue
and the 2002 tariff order specifically states that royalty was not
permitted to be factored in the cost while determining tariff - The
Arbitral Tribunal has totally failed to take into consideration this
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O.
CHIDAMBRANAR PORT TRUST TUTICORIN
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SUPREME COURT REPORTS
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aspect of the matter - As such, since the finding of the Arbitral
Tribunal, that there was an existing law to the effect that the royalty
payable shall be permitted as a pass-through in cost while fixation
of tariff, is based on 'no evidence' and the finding, that there was a
change in law in 2003 and 2005 is based on without taking into
consideration the relevant evidence, would come in the realm of
perversity as explained by this Court in paragraph 31 of the Associate
Builders - The findings are based on 'no evidence' and 'ignorance
of vital evidence' in arriving at its decision.
Arbitration and Conciliation Act, 1996: s.34 - Whether the
Arbitral Tribunal was justified in passing an award thereby
substituting 'royalty payment module' to the 'revenue-sharing
module' - A contract duly entered into between the parties cannot
be substituted unilaterally without the consent of the parties - The
intention of the parties could be gathered from the documents on
record - SICAL made representation to TPT seeking a relief under
the terms of Article 14.3 of the Agreement - TPT informed SICAL
that the issues raised by it were under examination - However, TPT
refused to consider SICAL's application for relief since, according
to it, the issue raised by SICAL was pending before the High Court
- SICAL filed writ petition before High Court - High Court allowed
the writ petition clarifying that the petition pending before the High
Court had nothing to do with the representation under Article 14 of
the License Agreement and remanded the matter to TPT for
consideration afresh - TPT rejected the claim of SICAL - TPT has
specifically observed that any change in the Agreement cannot be
done without prior approval of the GoI - SICAL wrote to TPT
invoking arbitration under Article 15.3 of the License Agreement -
TPT strenuously contested the claim of SICAL with regard to prayer
for change from 'royalty payment mode' to 'revenue sharing mode'
- It could, thus, be seen that SICAL wanted the Agreement to be
amended so as to change the 'royalty payment method' to 'revenuesharing method' - TPT was always opposed to it - The intention of
TPT is apparent from its various communications and its stand before
the Arbitral Tribunal, that it was not agreeable for amendment of
the Agreement from 'royalty payment method' to 'revenue-sharing
method' - However, ignoring the stand of TPT, by the impugned
Award, the Arbitral Tribunal has thrust upon a new term in the
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Agreement between the parties against the wishes of TPT - The
'royalty payment method' has been totally substituted by the Arbitral
Tribunal, with the 'revenue-sharing method' - It is thus clear, that
the Award has created a new contract for the parties by unilateral
intention of SICAL as against the intention of TPT.
Arbitration: An Arbitral Tribunal is not a Court of law - Its
orders are not judicial orders - Its functions are not judicial functions
- It cannot exercise its powers ex debito justitiae.
Dismissing the appeals, the Court
HELD : 1. The scope of interference would be limited to
grounds provided under Section 34 of the Arbitration Act. An
award would be set aside on the ground of patent illegality
appearing on the face of the award and as such, which goes to the
roots of the matter. However, an illegality with regard to a mere
erroneous application of law would not be a ground for
interference. Equally, re-appreciation of evidence would not be
permissible on the ground of patent illegality appearing on the
face of the award. A decision which is perverse, though would not
be a ground for challenge under "public policy of India", would
certainly amount to a patent illegality appearing on the face of
the award. However, a finding based on no evidence at all or an
award which ignores vital evidence in arriving at its decision would
be perverse and liable to be set aside on the ground of patent
illegality. [Paras 42, 43][434-H; 435-C-E]
2. Article 14 of the bid document deals with 'change in law'.
Article 14.3 provides for relief under change in law. If, after the
date of Agreement, there is a change in the law which substantially
and adversely affects the rights of the Licensee under the
Agreement so as to alter the commercial viability of the project,
the Licensee may, by written notice, request amendments to the
terms of the Agreement. It further provided, that subject to
provisions of Article 14.3, the Licensee shall not be entitled to
any compensation whatsoever from the Licensor as a result of
change in law. [Para 55][442-G-H; 443-B-C]
MMTC Limited v. Vedanta Limited (2019) 4 SCC 163:
[2019] 3 SCR 1023 - relied on.
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O.
CHIDAMBRANAR PORT TRUST TUTICORIN
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3.1 Neither under Section 34 nor under Section 37 of the
Arbitration Act, the Court is entitled to reappreciate the evidence.
The said limitation would be equally applicable to this Court also.
Admittedly, the bid document was published on 9th April, 1997.
The technical bid of SICAL was submitted on 24th October, 1997.
The financial offer of SICAL was submitted on 19th December,
1997. LoI was issued on 29th January, 1998. All this has happened
prior to the guidelines issued by TAMP in February 1998. As
such, it is beyond any doubt, that when the bid document was
notified and when SICAL submitted its bid and LoI was issued to
it, there were no guidelines in vogue. For the first time, the
guidelines were adopted by TAMP in the workshop held in
Chennai on 26th/27th February, 1998. [Para 60][444-C-F]
3.2 Even 1998 guidelines do not mention, that the royalty
could be factored in the cost while determining the tariff. Though
the said guidelines observed, that the port pricing may continue
to be cost-based with an assured rate of return, it further
observed, that such a concept of an assured rate of return is not
in consonance with a competitive system. Thus, it is amply clear,
that when the bids were invited, and SICAL submitted its bid
and LoI was issued to it, there was no policy at all. Even the 1998
guidelines do not provide for factoring the royalty in cost while
determining the tariff. [Para 63][445-G-H; 446-A]
4. A conjoint reading of all documents would reveal that
when the bid document was published in April 1997; SICAL
tendered its bid in October, 1997 and submitted its financial offer
in December,1997; and the LoI was issued to SICAL on 29th
January, 1998, there were no guidelines at all. Even the guidelines
of February 1998 do not provide for royalty being factored as
cost while fixation of tariff. On the contrary, the tariff order of
1999 specifically clarifies that it has left the royalty issue to be
decided by TPT and the GoI. It has specifically clarified that the
approval by TAMP should not be interpreted to be amounting to
any implicit approval of royalty-related issue. Further, the tariff
order issued on 20th September, 2002specifically rejects the claim
of SICAL for factoring any royalty as cost while tariff/price fixation.
SICAL has challenged the said order before the Madras High
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Court by way of writ petition, which petition has been allowed. It
is also not in dispute, that on account of interim order passed by
the Madras High Court dated 8th November, 2002, SICAL is still
continuing to charge at rates notified in the 1999 tariff order.
[Para 76][451-A-D]
5.1 In this scenario, the finding of the Arbitral Tribunal,
that there was a law when the Agreement was entered into
between the parties, which provided royalty as a pass-through
and that the said law has been changed for the first time in 2003
and subsequently again changed in 2005, is a finding based on
'no evidence'. Had the Arbitral Tribunal perused the tariff orders
of 1999 and 2002, it would have found that in the 1999 tariff order
TAMP has specifically observed that its approval of the tariff
should not be construed as its implicit approval of royalty-related
issue and the 2002 tariff order specifically states that royalty was
not permitted to be factored in the cost while determining tariff.
The Arbitral Tribunal has totally failed to take into consideration
this aspect of the matter. [Para 77][451-D-F]
6.2 As such, since the finding of the Arbitral Tribunal, that
there was an existing law to the effect that the royalty payable
shall be permitted as a pass-through in cost while fixation of tariff,
is based on 'no evidence' and the finding, that there was a change
in law in 2003 and 2005 is based on without taking into
consideration the relevant evidence, would come in the realm of
perversity as explained by this Court in paragraph 31 of the
Associate Builders. The findings are based on 'no evidence' and
'ignorance of vital evidence' in arriving at its decision. [Para
78][451-F-H]
Associate Builders v. Delhi Development Authority
(2015) 3 SCC 49 : [2014] 13 SCR 895 - relied on.
7.1 This brings us to the next issue viz., as to whether the
Arbitral Tribunal was justified in passing an award thereby
substituting 'royalty payment module' to the 'revenue-sharing
module'. A contract duly entered into between the parties cannot
be substituted unilaterally without the consent of the parties. The
intention of the parties could be gathered from the documents
on record. SICAL, for the first time, made representation to TPT
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O.
CHIDAMBRANAR PORT TRUST TUTICORIN
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on 6th October, 2006 thereby seeking a relief under the terms of
Article 14.3 of the Agreement. On 14th October, 2006, TPT
informed SICAL that the issues raised by it were under
examination. However, vide order dated 27th October, 2006, TPT
refused to consider SICAL's application for relief since, according
to it, the issue raised by SICAL was pending before the Madras
High Court. SICAL therefore filed writ petition being Writ Petition
No. 4361 of 2006 before the Madras High Court. The Madras
High Court allowed the said writ petition vide order dated 21st
August, 2007 clarifying that the petition pending before the High
Court had nothing to do with the representation under Article 14
of the License Agreement and remanded the matter to TPT for
consideration afresh. Vide a reasoned letter dated 25th April, 2008,
TPT rejected the claim of SICAL. TPT has specifically observed
that any change in the Agreement cannot be done without prior
approval of the GoI. SICAL on 19th November, 2012 addressed a
letter to TPT invoking arbitration under Article 15.3 of the License
Agreement. TPT strenuously contested the claim of SICAL with
regard to prayer for change from 'royalty payment mode' to
'revenue sharing mode'. [Para 79][452-A-E]
7.2 It could thus be seen, that SICAL wanted the Agreement
to be amended so as to change the 'royalty payment method' to
'revenue-sharing method'. TPT was always opposed to it. The
intention of TPT is apparent from its various communications
and its stand before the Arbitral Tribunal, that it was not agreeable
for amendment of the Agreement from 'royalty payment method'
to 'revenue-sharing method'. [Para 80][453-E-F]
7.3 However, ignoring the stand of TPT, by the impugned
Award, the Arbitral Tribunal has thrust upon a new term in the
Agreement between the parties against the wishes of TPT. The
'royalty payment method' has been totally substituted by the
Arbitral Tribunal, with the 'revenue-sharing method'. It is thus
clear, that the Award has created a new contract for the parties
by unilateral intention of SICAL as against the intention of TPT.
[Para 81][453-G]
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Ssangyong Engineering and Construction Company
Limited v. National Highway Authority of India (NHAI)
(2019) 15 SCC 131 : [2019] 7 SCR 522 - relied on.
8. An Arbitral Tribunal is not a Court of law. Its orders are
not judicial orders. Its functions are not judicial functions. It
cannot exercise its powers ex debito justitiae. It has been held
that the jurisdiction of the arbitrator being confined to the four
corners of the agreement, he can only pass such an order which
may be the subject-matter of reference.The impugned Award
would come under the realm of 'patent illegality' and therefore,
has been rightly set aside by the High Court. [Paras 87, 88]
[456-A-C]
Bharat Coking Coal Ltd. v. Annapurna Construction
(2003) 8 SCC 154 : [2003] 3 Suppl. SCR 122; Md.
Army Welfare Housing Organization v. Sumangal
Services (P) Ltd. (2004) 9 SCC 619 : [2003] 4 Suppl.
SCR 385 - relied on.
State of Jharkhand and Others v. HSS Integrated SDN
and Another (2019) 9 SCC 798; Sumitomo Heavy
Industries Limited v. Oil and Natural Gas Corporation
Limited (2010) 11 SCC 296 : [2010] 9 SCR 176; Kwality
Manufacturing Corporation v. Central Warehouse
Corporation (2009) 5 SCC 142; Rashtriya Ispat Nigam
Limited v. Dewan Chand Ram Saran (2012) 5 SCC 306
: [2012] 4 SCR 1; Steel Authority of India Limited v.
Gupta Brother Steel Tubes Limited (2009) 10 SCC 63 :
[2009] 14 SCR 253; Pure Helium India (P) Limited v.
Oil and Natural Gas Corporation Limited (2003) 8 SCC
593 : [2003] 4 Suppl. SCR 561; P.V. Subba Naidu and
Others v. Government of A.P. and Others (1998) 9 SCC
407; Dhannalal v. Kalawati Bai and Others (2002) 6
SCC 16 : [2002] 1 Suppl. SCR 19; Swamy Atmananda
and Others v. Shri Ramakrishna Tapovanam and Others
(2005) 10 SCC 51 : [2005] 3 SCR 556; Transcore v.
Union of India and Another (2008) 1 SCC 125 : [2006]
9 Suppl. SCR 785; Sandvik Asia Private Limited v.
Vardhman Promoters 2007 (94) DRJ 762; Hansalaya
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O.
CHIDAMBRANAR PORT TRUST TUTICORIN
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Properties v. Dalmia Cement (Bharat) Limited 2008
(106) DRJ 820; Adani Power (Mundra) Limited v.
Gujarat Electricity Regulatory Commission and Others
(2019) 19 SCC 9; Raghunathrao Ganpatrao v. Union
of India (1994) 1 SCC Supp 191 : [1993] 1 SCR 480;
Nagubai Ammal and Others v. B. Shama and Others
[1956] SCR 451; Suresh Kumar Wadhwa v. State of
Madhya Pradesh and Others (2017) 16 SCC 757 :
[2017] 14 SCR 1; All India Power Engineer Federation
and Others v. Sasan Power Limited and Others (2017)
1 SCC 487 : [2016] 9 SCR 901; Rashtriya Chemicals
and Fertilizers Limited v. Chowgule Brothers and Others
(2010) 8 SCC 563 : [2010] 7 SCR 962; South East
Asia Marine Engineering and Constructions Limited v.
Oil India Limited (2020) 5 SCC 164; J.G. Engineers
Private Limited v. Union of India and Another (2011) 5
SCC 758 : [2011] 8 SCR 486; Satyanarayana
Construction Company v. Union of India and Others
(2011) 15 SCC 101 - referred to.
Case Law Reference
(2019) 9 SCC 798
referred to
Para 26
[2010] 9 SCR 176
referred to
Para 26
(2009) 5 SCC 142
referred to
Para 26
[2012] 4 SCR 1
referred to
Para 26
[2009] 14 SCR 253
referred to
Para 26
[2003] 4 Suppl. SCR 561
referred to
Para 26
(1998) 9 SCC 407
referred to
Para 26
[2002] 1 Suppl. SCR 19
referred to
Para 26
[2005] 3 SCR 556
referred to
Para 26
[2006] 9 Suppl. SCR 785
referred to
Para 26
(2019) 19 SCC 9
referred to
Para 29
[1993] 1 SCR 480
referred to
Para 33
[1956] SCR 451
referred to
Para 33
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[2017] 14 SCR 1
referred to
Para 33
[2016] 9 SCR 901
referred to
Para 33
[2010] 7 SCR 962
referred to
Para 33
(2020) 5 SCC 164
referred to
Para 33
[2011] 8 SCR 486
referred to
Para 33
(2011) 15 SCC 101
referred to
Para 33
[2019] 7 SCR 522
relied on
Para 33
[2019] 3 SCR 1023
relied on
Para 58
[2014] 13 SCR 895
relied on
Para 78
[2003] 3 Suppl. SCR 122
relied on
Para 84
[2003] 4 Suppl. SCR 385
relied on
Para 86
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 36993700 of 2018.
From the Judgment and Order dated 01.11.2017 of the High Court
of Madras at Madurai Bench in CMA(MD) No. 345 of 2016 and C.M.P.
(MD) No. 4867 of 2016.
Dr. A.M. Singhvi, Gopal Jain, Sr. Advs., Sonal Jain, Zerick Dastur,
Ms. Sneha Sheth, Ishkaran Singh, Ms. Archana Uppuluri, Ms. Kajal
Sharma, Advs. for the appellant.
Mrs. Madhvi Dewan, ASG, Keshav Thakur, Ayush Puri, Mahesh
Prasad, Shikhar Sardana, Ajay Singh, Babu Malayil, Rajesh Singh
Chauhan, Advs. for the respondents.
The Judgment of the Court was delivered by
B. R. GAVAI, J.
1. The appellant has approached this Court being aggrieved by
the judgment and order dated 1st November 2017, passed by the Division
Bench of the Madras High Court in C.M.A. (MD) No. 345 of 2016 and
C.M.P. (MD) No. 4867 of 2016, thereby allowing the appeal of the
respondent No.1 herein under Section 37(1)(c) of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as 'the Arbitration Act')
vide which the High Court set aside the award dated 14th February 2014,
passed by the Arbitral Tribunal and the order passed by the District
PSA SICAL TERMINALS PVT. LTD. v. THE BOARD OF TRUSTEES OF V.O.
CHIDAMBRANAR PORT TRUST TUTICORIN
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Judge dated 25th February 2016, rejecting the application filed by the
respondent No.1 herein under Section 34 of the Arbitration Act.
2. The facts necessary for adjudication of the present appeals are
as under:-
The respondent No.1-The Board of Trustees of V.O.
Chidambranar Port Trust, Tuticorin (hereinafter referred to as 'TPT')
issued a global tender on 9th April 1997, inviting bids for development of
the Seventh Berth at V.O. Chidambranar Port, Tuticorin as a Container
Terminal and for operating and maintaining the same for 30 years on a
Build, Operate and Transfer (hereinafter referred to as 'BOT') basis.
In response to the tender, the appellant-PSA Sical Terminals Pvt. Ltd.
(hereinafter referred to as 'SICAL') submitted its bid on 24th October
1997. The financial offer was submitted by SICAL on 19th December
1997. Since SICAL's offer was the highest, the same was accepted and
a Letter of Intent (hereinafter referred to as 'LoI') was issued to it on
29th January 1998 and the same was followed by a License Agreement
dated 15th July 1998.
3. In the meantime, the Tariff Authority for Major Ports (hereinafter
referred to as 'TAMP') which is an authority constituted under the Major
Port Trusts Act, 1963 adopted guidelines on 26th/27th February 1998.
SICAL submitted its tariff proposal with regard to the Container Terminal
on 28th September 1999. A revised proposal came to be submitted by
SICAL on 8th October 1999, thereby including royalty as an element of
cost. The said proposal was approved by TAMP's order dated 8th
December 1999. TAMP notified its order of 8th December 1999 vide
gazette notification dated 28th December 1999, thereby approving the
tariff as proposed by SICAL vide proposal dated 8th October 1999.
SICAL submitted a further proposal on 8th February 2002 for review in
tariff, again including therein an increase in royalty to be paid as an
element of cost and proposed for an increase in the tariff. TPT vide
communication dated 10th April 2002, objected to the proposal of SICAL
for increase in tariff. TAMP vide its order dated 20th September 2002,
rejected the proposal of SICAL for increase in tariff.
4. SICAL filed Writ Petition Nos. 40637-40639 of 2002 before
the Madras High Court for quashing of the TAMP order dated 20th
September 2002. In the said proceedings, the Madras High Court passed
an order dated 8th November 2002 granting interim relief in favour of
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SICAL, thereby staying the TAMP order dated 20th September 2002.
Vide the said order, SICAL was permitted to charge tariff at the rate
prevailing prior to the TAMP order impugned in those petitions.
5. Ministry of Shipping, Government of India (hereinafter referred
to as 'GoI') vide notification dated 29th July 2003, clarified that revenue
sharing/royalty payment shall not be factored into as cost for fixation/
revision of tariff by TAMP and further directed that the same shall be
clearly indicated in subsequent bid documents. On 31st March 2005,
TAMP notified the revised guidelines thereby disallowing royalty as an
element of cost. However, it also provided that in BOT cases where
bidding processes were finalized before 29th July 2003, the tariff
computation will take into account royalty/revenue share as cost for
tariff fixation in such a manner as to avoid likely loss to the operator on
account of the royalty/revenue share not being taken into account. This
was subject to a maximum of the amount quoted by the next lowest
bidder. This was also to be allowed only for the period up to which such
likely loss would arise. It further provided that this would not be applicable
if there is a provision in the concession agreement on treatment of royalty/
revenue share.
6. On 17th August 2005, a Memorandum of Compromise
(hereinafter referred to as the 'MoC') came to be filed before the Madras
High Court between SICAL, GoI and TAMP who were parties to the
Writ Petition Nos. 40637-40639 of 2002. As per the said MoC, SICAL
was to submit a proposal to the Ministry of Shipping and Transport, GoI
in the matter of permitting royalty to be allowed to be factored into cost
while fixation of tariff for the period prior to 31st March 2005. It was
also clarified that for the period thereafter, new guidelines provide the
manner and mode in which this has to be done. The MoC provided that
on receipt of the proposal, the Central Government would consider the
same and pass appropriate orders consistent with the policy decision of
the Government of India (hereinafter referred to as the 'GoI') in the
matter of Chennai Container Terminal Limited (hereinafter referred
to as the 'CCTL') dated 5th August 2003 and accordingly issue a directive
under Section 111 of the Major Port Trusts Act, 1963. Vide the said
MoC, it was further provided that SICAL would continue to charge the
1999 Tariff which was permitted as per the interim orders passed by the
High Court till new tariff was gazetted. It further provided that
advantages/ gains, if any, that SICAL has enjoyed by virtue of not
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CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
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implementing the 2002 Tariff, will be quantified by TAMP and such
advantages/gains will be adjusted/set-off in the proposed new tariff and
such set-off will be spread over a period of three years.
7. In pursuance of the aforesaid MoC, GoI issued a directive/
order to TAMP in case of SICAL on 17th April 2006. Vide the said
directive/order, the request of SICAL for claiming a part of royalty as
pass through came to be rejected. SICAL thereafter submitted its proposal
for fixation of tariff on 18th April 2006. TAMP passed a tariff order on
23rd August 2006, which came to be notified on 15th September 2006,
vide which SICAL's proposal for increase in tariff was rejected.
8. SICAL made a written representation to TPT on 6th October
2006, thereby seeking relief under the terms of Article 14.3 of the License
Agreement. Vide the said representation, SICAL requested for amending
the License Agreement so as to incorporate the revenue sharing method
and incidental changes.
9. SICAL also filed Writ Petition Nos. 38845 and 38846 of 2006
before the Madras High Court on 9th October 2006, thereby challenging
the GoI directive dated 17th April 2006 and the TAMP order dated 23rd
August 2006. On 27th October 2006, TPT refused to consider SICAL's
application for amendment of the License Agreement on the ground that
the issues raised were pending consideration before the Madras High
Court. The said communication dated 27th October 2006 came to be
challenged by SICAL before the Madras High Court vide Writ Petition
No.43461 of 2006. The Madras High Court passed an order dated 21st
August 2007, in Writ Petition No. 43461 of 2006 filed by SICAL, observing
therein that the representation dated 6th October 2006, had nothing to do
with the pendency of said writ petition and quashed the communication
dated 27th October 2006. It directed TPT to consider and decide the
representation of SICAL on its own merits.
10. Vide subsequent order dated 22nd August 2007, Writ Petition
Nos. 38845 and 38846 of 2006 were allowed by setting aside the TAMP
order dated 23rd August 2006 and the GoI directive dated 17th April
2006. The said order was passed on the ground that SICAL was not
given sufficient opportunity of being heard by TAMP and GoI and
therefore, directed TAMP and GoI to pass fresh order after giving
opportunity of hearing to the SICAL.
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11. In pursuance of the order passed by the High Court, the GoI
issued a directive on 20th February 2008, therein considering the
contentions raised on behalf of SICAL. The said directive provided that
TAMP, while fixing the tariff in case of SICAL, should take into
consideration the benefit given in the case of CCTL.
12. TAMP vide notification dated 26th February 2008, notified the
guidelines for upfront tariff fixation for Public Private Partnership projects
at Major Ports.
13. In pursuance of the order passed by the High Court dated 21st
August 2007, the Chairman, TPT passed an order on 25th April 2008,
observing therein that any change in the bidding parameter is a matter of
policy regarding which a decision can be taken only by the GoI and in
effect, rejected the proposal of SICAL for amending the License
Agreement, so as to incorporate the revenue sharing method.
14. SICAL thereafter submitted its proposal for fixation of tariff
thereby proposing an increase in tariff on 3rd October 2008. TAMP
passed tariff order dated 17th December 2008, which came to be notified
on 30th December 2008, rejecting SICAL's proposal for increase in tariff.
SICAL thereafter again on 6th January 2009, made a representation to
TPT for amendment of the License Agreement in view of Article 14.3.
SICAL also filed Writ Petition Nos. 1350 and 1351 of 2009, challenging
the tariff order dated 17th December 2008 and the policy direction issued
by GoI dated 20th February 2008. The Madras High Court vide order
dated 15th October 2009 allowed those petitions by setting aside the
tariff order of 2008 and the GoI directive of 20th February 2008. Vide
the said order, the Madras High Court directed TAMP to issue fresh
tariff order after obtaining necessary proposal from SICAL and after
according sufficient opportunity including personal hearing to SICAL.
The GoI directive of 2008 also came to be set aside with a direction to
the GoI to consider the matter afresh after giving an opportunity of hearing
to SICAL. The said orders have been challenged by TAMP by filing
Writ Appeal No. 1845 of 2009 which is pending. It also appears that an
appeal has also been filed by SICAL which is also pending before the
Division Bench of the Madras High Court.
15. SICAL thereafter addressed a letter to TPT dated 1st
December 2009, raising therein the ground of change in law and therefore
again praying for shifting to revenue sharing model. A meeting was held
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CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
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by the Secretary, Ministry of Shipping, GoI on 28th February 2011, wherein
the representatives of TPT and SICAL were present. It was decided in
the said meeting that two proposals each should be submitted by SICAL
as well as TPT. These proposals were to be considered by the Expert
Committee.
16. SICAL thereafter on 28th June 2011, moved a petition under
Section 9 of the Arbitration Act before the District Judge, Tuticorin with
a grievance that the royalty payable for each Twenty-foot Equivalent
Unit (hereinafter referred to as "TEU") was scheduled to exceed the
tariff. On 30th June 2011, District Judge, Tuticorin passed an order
granting ad-interim stay in the Section 9 petition, thereby restraining TPT
from demanding or recovering any royalty at an escalated rate. In July
2011, SICAL addressed a letter to the Chairman, TPT requesting for
referring the dispute for arbitration under Article 15.3 of the License
Agreement. The said request came to be rejected by the Chairman,
TPT vide communication dated 28th September 2011.
17. In the meanwhile, the proposals submitted by SICAL as well
as TPT were being considered by the Expert Committee. On 30th April
2012, District Judge, Tuticorin passed an order thereby allowing the
Section 9 petition filed by SICAL and made absolute the ad-interim
injunction granted in its favour. Thereafter, there was exchange of certain
communications between SICAL and TPT with regard to the submission
of performance bank guarantee at an escalated rate. In the meantime,
TPT challenged the order of injunction granted by the District Judge by
filing an appeal being C.M.A.(MD) No. 1131 of 2012 and the same is
pending consideration before the Madurai Bench of the Madras High
Court. SICAL addressed a letter dated 19th November 2012, invoking
arbitration clause under Article 15.3 of the License Agreement. In the
meantime, on 8th August 2013, TAMP issued 2013 Guidelines for
determination of tariff for projects at Major Ports.
18. On 5th April 2013, SICAL filed its Statement of Claim in the
arbitration proceedings. TAMP filed its counter statement in June 2013
to which a statement in rejoinder came to be filed by SICAL on 28th
June 2013. TPT filed its reply to the rejoinder in August 2013. Vide
award dated 14th February 2014, the Arbitral Tribunal passed the award
in favour of SICAL holding that there was a change in law and thereby
granting reliefs as prayed for by SICAL. It directed conversion of
Container Terminal of TPT from royalty model to revenue share model.
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19. The award of Arbitral Tribunal dated 14th February, 2014 came
to be challenged by TPT by filing a petition under Section 34 of the
Arbitration Act being OP No. 389 of 2014 before the Madras High Court.
SICAL challenged the jurisdiction of the Madras High Court to adjudicate
the petition filed under Section 34 of the Arbitration Act. There were
certain interlocutory proceedings to which reference would not be
necessary. By order dated 9th June 2015, the Madras High Court held
that the petition filed by TPT under Section 34 of the Arbitration Act
was not tenable on the ground of jurisdiction. As such TPT re-presented
its Section 34 petition on 30th June 2015, before the District Judge, Tuticorin
being Ar.O.P. No. 260 of 2015. The District Judge, Tuticorin vide order
dated 25th February 2016, dismissed the Section 34 petition filed by TPT.
Being aggrieved thereby, TPT filed an appeal before the Madras High
Court which came to be allowed by the order dated 1st November 2017,
vide which the award of the Arbitral Tribunal dated 14th February 2014
and the order passed by the District Court dated 25th February 2016,
came to be set aside. Being aggrieved thereby, SICAL has approached
this Court by way of the present appeals.
20. We have heard Dr. A.M. Singhvi and Shri Gopal Jain, learned
Senior Counsel on behalf of the appellant-SICAL, Smt. Madhavi Divan,
learned Additional Solicitor General of India and Shri Keshav Thakur,
learned counsel on behalf of TPT.
21. Dr. Singhvi submitted that Article 14 of the License Agreement
specifically provides that if after the date of the agreement, there is a
change in law which substantially and adversely affects the rights of the
Licensee under the said agreement, so as to alter the commercial viability
of the project, the Licensee may, by written notice, request amendments
to the terms of the agreement. He submitted that the definition of law in
Article 14 is wide enough and includes any valid act, ordinance, rule,
regulation, notification, directive, orders, policy, bye-laws, administrative
guidelines, ruling or instruction having the force of law, enacted or issued
by Government Authority. The learned Senior Counsel submitted that
Article 14.3 also provides that subject to the provisions of Article 15.3,
the Licensee shall not be entitled to any compensation whatsoever from
the Licensor as a result of change in law. He submitted that if Article
14.3 is read in the correct perspective, it will be clear that compensation
is not provided to the Licensee on account of any change in law inasmuch
as a relief could be provided to the Licensee by suitably amending the
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CHIDAMBRANAR PORT TRUST TUTICORIN [B. R. GAVAI, J.]
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terms of the agreement when such a change substantially and adversely
affects the rights of the Licensee. He submitted that the said Article is a
unique one.
22. Dr. Singhvi submitted that the Nhava Sheva Container Terminal
Limited (hereinafter referred to as the 'NSCT') was the first project
which was built on BOT basis. The second one being the Seventh Berth
of TPT. He submitted that these are the only projects wherein royalty
method has been adopted. He submitted that all subsequent projects
provide for revenue sharing model. He submitted that it will be clear
from the stand of TPT, when the proposal was moved by SICAL for
increase in tariff in 1999, that it also understood that the royalty was also
to be factored in while finalizing the tariff. He submitted that perusal of
the tariff order dated 8th December 1999, would reveal that even TAMP
has allowed royalty as a pass through. He submitted that the guidelines
of 1998 would also clarify that it was a policy of TAMP that the port
pricing was to continue to be cost based with an assured rate of return.
He submitted that the said guidelines provide for an assured rate of
return. He submitted that TPT, as a matter of fact, vide communication
dated 3rd November 1999 addressed to TAMP, had opposed any reduction
of tariff as proposed by SICAL.
23. Dr. Singhvi submitted that the first change in law was effected
vide order of the GoI dated 29th July 2003, by which no percentage of
royalty was permitted as a pass through. The second change in law was
effected on 31st March 2005, by which the royalty was permitted as a
pass through, however, restricting the same to the maximum of the amount
quoted by the next lowest bidder. He therefore submitted that on account
of these changes in law, SICAL was entitled to get a relief of amendment
of the License Agreement and on failure of TPT to provide the relief,
SICAL was entitled to invoke arbitration. He submitted that though several
representations were made to TPT, the same had not been responded to
and as such, SICAL was left with no alternative than to invoke the
arbitration clause. He submitted that this has been rightly construed by
the Arbitral Tribunal. However, the Division Bench of the High Court
has erroneously interfered with the finding of fact recorded by the Arbitral
Tribunal which was upheld by the District Judge.
24. Dr. Singhvi further submitted that SICAL has been put in a
very precarious situation.