# RELIANCE INFRASTRUCTURE LTD v. STATE OF GOA

- **Citation:** [2023] 8 S.C.R. 379
- **Court:** Supreme Court of India
- **Decided:** 2023-05-10
- **Case number:** Civil Appeal No. 3615 of 2023
- **Bench:** Dinesh Maheshwari, Sanjay Kumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/reliance-infrastructure-ltd-v-state-of-goa-37547
- **Pages:** 73

## Headnote

Arbitration and Conciliation Act, 1996: ss. 34, 37 - Arbitral
award - Scope of interference - Held: Arbitral award is not an
ordinary adjudicatory order so as to be lightly interfered with by
the Courts u/ss. 34 or 37 as if dealing with an appeal or revision
against a decision of any subordinate Court - An award could be
said to be suffering from "patent illegality" only if it is an illegality
apparent on the face of the award and not to be searched out by
way of re-appreciation of evidence - Possibility of interference would
arise only if the construction of the arbitrator is such which could
not be made by any fair-minded and reasonable person - Narrow
scope of "patent illegality" cannot be breached by mere use of
different expressions which nevertheless refer only to "error" and
not to "patent illegality" - If an arbitrator construes the term of
contract in a reasonable manner, the award cannot be set aside
with reference to the deduction drawn from construction - Restraint
is required to be shown while examining the validity of arbitral award
by the Courts, else interference with the award after reassessing
the factual aspects would be defeating the object of the Act - On
facts, the appellants constructed a power plant for the State under
a power purchase agreement-PPA, however, the State failed to pay
for the power generated by the plant - Matter referred to the
arbitrator, wherein the appellants awarded a sum of Rs. 292.22
crore along with an interest of 15% p.a. from the date of the award
till the date of payment, however, the High Court reduced the interest
rate awarded to 10% p.a.- High Court misdirected itself on the
major issues concerning the merits of the award - Nothing of a
patent illegality apparent on the face of the award pointed out - As
the prevailing interest rates at the time were in the range of 13% to
14% p.a., the arbitrator acted within his jurisdiction in awarding
the interest rate of 15% p.a. post award and there was no
justification to reduce the same to 10% p.a. - There had been no
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such flaw in the judgment and order passed by the Commercial
Court which called for interference by the High Court on the
parameters and within the periphery of ss. 34/37 - Part of the
impugned judgment and order passed by the High Court, which
modifies the award and the order of the Commercial Court is set
aside and the award is restored in its entirety.
Disposing of the appeals, the Court
HELD: 1.1 Arbitral award is not an ordinary adjudicatory
order so as to be lightly interfered with by the courts under
sections 34 or 37 of the Arbitration and Conciliation Act, 1996 as
if dealing with an appeal or revision against a decision of any
subordinate court. The significant aspect is that it is not a mere
illegality which would call for interference, but it has to be "a
patent illegality", which obviously signifies that it ought to be
apparent on the face of the award and not the one which is culled
out by way of a long-drawn analysis of the pleadings and evidence.
Of course, when the terms and conditions of the agreement
governing the parties are completely ignored, the matter would
be different and an award carrying such a shortcoming shall be
directly hit by Section 28(3) of the Act, which enjoins upon an
arbitral tribunal to decide in accordance with the terms of contract
while taking into account the usage of trade applicable to the
transaction. If an arbitrator construes the term of contract in a
reasonable manner, the award cannot be set aside with reference
to the deduction drawn from construction. The possibility of
interference would arise only if the construction of the arbitrator
is such which could not be made by any fair-minded and reasonable
person. [Para 18][433-D-G]
1.2 The instant case had not been a case of the fundamental
alteration of the terms of contract during the currency of contract
and for that matter, the parties having definitely exchang

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[2023] 8 S.C.R. 379
379
RELIANCE INFRASTRUCTURE LTD.
v.
STATE OF GOA
(Civil Appeal No. 3615 of 2023)
MAY 10, 2023
[DINESH MAHESHWARI AND SANJAY KUMAR, JJ.]
Arbitration and Conciliation Act, 1996: ss. 34, 37 - Arbitral
award - Scope of interference - Held: Arbitral award is not an
ordinary adjudicatory order so as to be lightly interfered with by
the Courts u/ss. 34 or 37 as if dealing with an appeal or revision
against a decision of any subordinate Court - An award could be
said to be suffering from "patent illegality" only if it is an illegality
apparent on the face of the award and not to be searched out by
way of re-appreciation of evidence - Possibility of interference would
arise only if the construction of the arbitrator is such which could
not be made by any fair-minded and reasonable person - Narrow
scope of "patent illegality" cannot be breached by mere use of
different expressions which nevertheless refer only to "error" and
not to "patent illegality" - If an arbitrator construes the term of
contract in a reasonable manner, the award cannot be set aside
with reference to the deduction drawn from construction - Restraint
is required to be shown while examining the validity of arbitral award
by the Courts, else interference with the award after reassessing
the factual aspects would be defeating the object of the Act - On
facts, the appellants constructed a power plant for the State under
a power purchase agreement-PPA, however, the State failed to pay
for the power generated by the plant - Matter referred to the
arbitrator, wherein the appellants awarded a sum of Rs. 292.22
crore along with an interest of 15% p.a. from the date of the award
till the date of payment, however, the High Court reduced the interest
rate awarded to 10% p.a.- High Court misdirected itself on the
major issues concerning the merits of the award - Nothing of a
patent illegality apparent on the face of the award pointed out - As
the prevailing interest rates at the time were in the range of 13% to
14% p.a., the arbitrator acted within his jurisdiction in awarding
the interest rate of 15% p.a. post award and there was no
justification to reduce the same to 10% p.a. - There had been no
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[2023] 8 S.C.R.
such flaw in the judgment and order passed by the Commercial
Court which called for interference by the High Court on the
parameters and within the periphery of ss. 34/37 - Part of the
impugned judgment and order passed by the High Court, which
modifies the award and the order of the Commercial Court is set
aside and the award is restored in its entirety.
Disposing of the appeals, the Court
HELD: 1.1 Arbitral award is not an ordinary adjudicatory
order so as to be lightly interfered with by the courts under
sections 34 or 37 of the Arbitration and Conciliation Act, 1996 as
if dealing with an appeal or revision against a decision of any
subordinate court. The significant aspect is that it is not a mere
illegality which would call for interference, but it has to be "a
patent illegality", which obviously signifies that it ought to be
apparent on the face of the award and not the one which is culled
out by way of a long-drawn analysis of the pleadings and evidence.
Of course, when the terms and conditions of the agreement
governing the parties are completely ignored, the matter would
be different and an award carrying such a shortcoming shall be
directly hit by Section 28(3) of the Act, which enjoins upon an
arbitral tribunal to decide in accordance with the terms of contract
while taking into account the usage of trade applicable to the
transaction. If an arbitrator construes the term of contract in a
reasonable manner, the award cannot be set aside with reference
to the deduction drawn from construction. The possibility of
interference would arise only if the construction of the arbitrator
is such which could not be made by any fair-minded and reasonable
person. [Para 18][433-D-G]
1.2 The instant case had not been a case of the fundamental
alteration of the terms of contract during the currency of contract
and for that matter, the parties having definitely exchanged
communication and having brought into existence an agreement
which, even if construed as supplemental to original one, had
been of material difference in regard to the use of particular fuel
and then raising of invoices on that basis with reference to
fluctuating price of fuel as also the exchange rate of foreign
currency (US dollar). [Para 19.3][436-B-C]
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1.3 The matter can be examined from yet another angle. If
the terms agreed to by the parties with exchange of
communications commencing from 20.03.2013 were to be
ignored, the result would be of ignoring such terms of contract of
the parties which had come into existence and which were binding
on both. Viewed thus, coupled with the fact that only the limited
dispute was presented for arbitration (i.e., as to whether power
was to be supplied on the basis of fixed rate of fuel and fixed rate
of currency or on variable charges), the Arbitral tribunal has been
justified in focusing on the core issue raised, rather than going
astray and entering into such an analysis which was not germane
to the issue at hand. [Para 20][436-C-E]
1.4 No ground for challenge under Sections 34 or 37 of the
Act was made out in relation to the award pertaining to variable
charges. Hence, the High Court has not been right in setting
aside the award relating to variable charges on the ground of socalled non-consideration of clauses 12.1.4 to 12.1.7 of Power
Purchase Agreement. [Para 21][436-F]
1.5 The High Court, even while reminding itself of the
limitation of jurisdiction, committed the same error by extensively
dissecting the evidence while assuming that clauses 12.1.4 to
12.1.7 were decisive of the matter without taking a close look at
the material propositions which formed the dispute and which
were presented by the parties before the arbitral tribunal. As
regards variable charges, the core question before the tribunal
had been as to whether the claimant agreed to supply electricity
on fixed charges with fixed rate of foreign currency while using
the alternate fuel. This question was essentially to be determined
with reference to the new contract that came into existence with
exchange of communications between the parties. The arbitrator
precisely decided the matter with reference to, and after analysis
of, that evidence. It had neither been a case of the arbitrator not
taking into consideration the terms of contract applicable to the
issue at hand nor of any such finding which no fair-minded or
reasonable person could have possibly rendered ever. Viewed in
the light of core dispute presented to the arbitral tribunal by the
parties, the submissions that the arbitral tribunal has not examined
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the question as to whether the correspondence in question
resulted in change of fundamentals of contract, do not make out
a case for interference because novation of the terms of contract
as regards fuel had not been a matter of dispute at all. The core
question was as to how the new terms were to operate. The
arbitral tribunal precisely dealt with the same in accordance with
law. [Para 21.1][436-F-H; 437-A-C]
1.6 What has been observed and held in disapproval of
interference by the High Court in the item of award pertaining to
variable charges more or less apply to the other items too, where
the High Court has interfered and has upturned the award. On
every such score, the High Court has rather entered into merits
of the matter as if dealing with a regular appeal. It has been a
clear case of the High Court travelling beyond the periphery of
Section 34 as also Section 37 of the Act. [Para 22][437-D-E]
1.7 The Arbitral Tribunal held that the issue relating to
downrating of capacity was settled between the parties and the
parties should not be allowed to reagitate the same, whereas the
High Court found shortcomings in the discussions of the arbitral
tribunal as regards the meaning and effect of the certificate dated
08.11.2005 and as to whether the claimant could have made any
claim on that basis or not. The High Court even proceeded to
analyse the minutes of the meeting. It has clearly been a case of
value and worth attached to a particular evidence by arbitral
tribunal, which was considered not satisfactory by the High Court;
and rejection of the contention of the Government by the arbitral
tribunal was found to be erroneous. However, thereafter, the High
Court again observed that it was not a case of re-appreciation of
evidence but being a case of no evidence, there had been patent
illegality. [Paras 23.3, 24][441-D-F]
1.8 The High Court travelled beyond its jurisdiction under
Section 37 and rather than remaining within the confines of
consideration under Section 34 of the Act, entered into the arena
which is exclusively within the arbitrator's domain. What the
arbitral tribunal held in regard to this item had exclusively been
its view on the evidence on record and the relevant surrounding
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facts/factors. The view so taken by the arbitral tribunal cannot be
said to be wholly perverse or suffering from patent illegality so
as to be interfered with. Even if two views are possible, the Court
cannot substitute its own view with that of the arbitral tribunal.
[Para 24.1][442-F-G]
1.9 The questions in relation to the issue concerning
downrating, that adverse inference ought to be drawn against
the claimant for failure to produce OEM recommendations, are
only pertaining to the principles of appreciation of evidence. In
the regular adjudicatory process, the Court may presume
existence of certain facts under Section 114 of the Evidence Act,
1872; and in terms of Illustration (g) thereof, the Court is entitled
to draw an inference that the evidence which could be but not
produced would, if produced, be unfavourable to the person who
withholds it. However, in a given case, while determining the
dispute by way of arbitration, whether the arbitrator draws such
adverse inference or not, is essentially a matter of appreciation
of evidence; and if not drawing of adverse inference is also
permitted to be raised as a ground of challenge under Section
34, it would open the confines of limited interference in an award;
and would carry the propensity of converting the proceedings
under Section 34 and under Section 37 into the proceedings of
regular appeal/revision against the award and thereby, again
violating the principles that re-appreciation of evidence is not
envisaged in the proceedings under Section 34 of the Act of 1996.
It gets per force reiterated that an award could be said to be
suffering from "patent illegality" only if it is an illegality apparent
on the face of the award and not to be searched out by way of reappreciation of evidence. The submissions as regards drawing of
adverse inference are themselves adverse to the ethos of
Sections 34 and 37 of the Act of 1996 and are required to be
rejected. [Para 25][442-H; 443-A-E]
1.10 As regards the question of downrating, the questions
relating to the value of certificate dated 08.11.2005 and the effect
of the claimant not taking up this issue earlier would again fall
directly within the arena of appreciation of evidence and reach to
the extent of rendering the finding on preponderance of
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probabilities. The arbitral tribunal has taken a particular view of
the evidence before it. If it were an appeal against the award, the
approach of the Court could have been different but, not so while
examining the award within the confines of Section 34 of the Act.
Even in a regular appeal against a decree of the trial court, the
appellate court would not substitute its own views without
specifically recording a finding as to the error in the decision
under challenge. In any case, if the approach of the High Court in
the present case is countenanced, the result would only be of
making every award susceptible to challenge before the Court
on those very grounds which are, otherwise, of appeal or revision
and which are not permitted by the legislature to be taken under
Section 34 of the Act of 1996. [Para 25.1][443-E-H]
1.11 The approach of the High Court in relation to the two
comparatively minor issues relating to variable charges on 4MW
power and netting-out principles is also suffering from the same
error, where the High Court deeply analysed the evidence on
record to hold that the arbitral tribunal has not been correct in
its propositions or inferences. [Para 26][444-A-B]
1.12 As regards the award relating to variable charges on 4
MW power, the High Court stepped into the arena which is
reserved for the arbitral tribunal. It is noticed that the parties
had agreed to a particular methodology of billing for supply of
15.8 MW power but, at the same time, retained with them the
right to revert back to 19.8 MW supply at any future point of
time. With reference to the dealings of the parties, the arbitral
tribunal took a particular view of the matter. It cannot be said
that the view as taken by the arbitral tribunal was entirely
impermissible or implausible. There was no scope for interference
by the Court. [Para 29][445-B]
1.13 The aspect of netting-out depended on the terms of
contract of the parties and the deductions to be drawn from the
evidence on record. The arbitral tribunal had drawn the particular
conclusion on the basis of notes dated 13.09.2014 and 18.09.2014.
The arbitral tribunal considered the documentary evidence before
it, as well as the provisions of the contract relating to supply of
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backup power by Government of Goa to the claimant when the
power station was under shutdown for the period May 2014 to
August 2014. The arbitral tribunal further referred to the
communications which also include the decision of the
Government of Goa as to the rate at which power during the shut
down period was to be supplied to the claimant and on this basis,
came to the finding that a fixed rate which was not to be multiplied
as per the provisions of the PPA was agreed between the parties.
The award also gave reasons for such finding. Even if it be
assumed that another view is possible, it cannot be said that the
arbitral tribunal has taken such a view which no fair-minded and
reasonable person could have ever taken. The High Court
substituted its own view and reinterpreted the documentary
evidence before it for setting aside the award. Such a substitution
of view is not permissible for the Court under Section 34 of Act.
There arise no question of it being permissible under Section 37
of the Act. [Paras 30, 31.1][445-C-F; 446-E]
1.14 In regard to the question of interest, the High Court
rightly held that the arbitral tribunal was justified in following the
contractual provisions and the provisions of Section 31(7) of the
Act; and has rightly not interfered with the award of interest for
the pre-reference period and the period during which the
proceedings were pending before the arbitral tribunal. The State
is not right in contending that the interest could not have been
awarded during the period of reference to the arbitrator. In regard
to this aspect, the submissions to the effect that pre-reference
period interest was not based on any compelling reasons and
contractual provisions for interest were in terrorem are liable to
be discarded, could only be rejected for being not even standing
within the periphery of Section 34 of the Act of 1996. However,
insofar as post-award period is concerned, the High Court has
reduced the rate of interest from 15% to 10% relying on the
principles of proportionality. The said reduction of rate of interest
by the High Court is also unjustified. The provisions of Section
31(7)(b) that unless the award otherwise directs, the sum payable
under the arbitral award shall carry interest at the rate of 2%
higher than the current rate of interest prevalent on the date of
the award, from the date of the award to the date of payment. The
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expression "current rate of interest" has been explained in the
Explanation to the said Section to have the same meaning as
assigned under Section 2(b) of the Interest Act, 1978. The High
Court held that Court may reduce interest awarded by the
arbitrator when such interest does not reflect the prevailing
economic condition or where it is not found reasonable or where
it promotes interest of justice. There is no basis in the impugned
judgment of the High Court for reducing the rate of interest.
[Paras 32.1, 33, 34][446-G-H; 447-A-B, F-H; 448-A]
1.15 The High Court seems to have not considered the
relevant factual aspects. On the contrary, the prevailing interest
rate being the prime lending rate of State Bank of India was in
the range of 13% to 14% per annum. Thus, the arbitral tribunal
was justified in granting interest at the rate of 15% per annum
post award. The arbitral tribunal was well within its jurisdiction
under Section 31 of the Act to award interest at the rate of 15%
p.a. and there was no justification to reduce the same to 10% p.a.
The High Court was not exercising any equity jurisdiction so as
to resettle the rate of interest as deemed fit by it. It had been a
matter relating to an award made by the arbitral tribunal in a
commercial dispute. [Para 34.1][448-C-E]
1.16 The High Court could only be said to have misdirected
itself on the major issues concerning merits of the award.
However, it is observed that it had not been as if the Commercial
Court did not examine the material issues arising for
determination while dealing with the case in terms of Section 34
of the Act of 1996. [Para 35][448-G]
1.17 After taking note of the submissions of parties, the
Commercial Court precisely framed the points for determination
and then, dealt with every point on the anvil of Section 34 of the
Act of 1996. The High Court was not justified in making a
comment about framing of points for determination by Commercial
Court and then observing that the Commercial Court merely
reproduced the findings of the award. The Commercial Court
dealing with Section 34 application was not acting as a Court of
Appeal. Yet, the Commercial Court enumerated the issues raised
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and then returned the findings after examining the record and
while rejecting the submissions made on behalf of the State. There
had been no such flaw in the judgment and order passed by the
Commercial Court which called for interference by the High Court
on the parameters and within the periphery of Sections 34/37 of
the Act of 1996. [Para 35.1][448-H; 449-A-C]
1.18 The narrow scope of "patent illegality" cannot be
breached by mere use of different expressions which nevertheless
refer only to "error" and not to "patent illegality". Restraint is
required to be shown while examining the validity of arbitral award
by the Courts, else interference with the award after reassessing
the factual aspects would be defeating the object of the Act of
1996. This is a part from the fact that such an approach would
render several judicial pronouncements of this Court redundant
if the arbitral awards are set aside by categorizing them as
"perverse" or "patently illegal" without appreciating the contours
of these expressions. [Para 36][450-B-D]
1.19 In the impugned judgment, the High Court though
referred to the principles laid down by this Court in Ssangyong
Engineering's case but then, reproduced an analysis by a Single
Judge of the High Court and proceeded to decide the matter
with reference to the passages so extracted. Enunciation of this
Court ought to have been examined by the Division Bench of the
High Court while dealing with the matter at hand, rather than
relying on the analysis by a Single Judge of the High Court.
Nothing is said more in this regard, essentially because the latter
decisions of this Court like those in Delhi Airport Metro Express
and Haryana Tourism Limited were not available before the High
Court at the time of passing of the impugned judgment and order
dated 08.03.2021. Nevertheless, the principles expounded by this
Court in Associate Builders and Ssangyong Engineering's case
were available and the matter was required to be dealt with in
reference to those principles. Leaving this aspect at that, suffice
it would be to observe for the present purpose that the impugned
judgment and order, insofar it interferes with the findings and
the conclusions of the award in question, cannot be sustained
and is required to be set aside. [Para 37][450-D-G]
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1.20 Fact of the matter remains that nothing of a patent
illegality apparent on the face of the award has been pointed out.
The submissions essentially are of indicating some alleged errors
on the merits of the case which do not fall within the parameters
of Section 34 of the Act of 1996. Hence, that part of the impugned
judgment and order as passed by the High Court, which modifies
the award and the order of the Commercial Court, is set aside
and consequently, the award in question is restored in its entirety.
[Paras 38, 39][451-A-C]
Ssangyong Engineering and Construction Co. Ltd. v.
NHAI: (2019) 15 SCC 131 : [2019] 7 SCR 522;
Associate Builders v. Delhi Development Authority
(2015) 3 SCC 49 : [2014] 13 SCR 895; Delhi Airport
Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation
Ltd. (2022) 1 SCC 131- relied on.
Vedanta Ltd. v. Shenzhen Shandong Nuclear Power
Construction Co. Ltd: (2019) 11 SCC 465 : [2018] 12
SCR 829 - distinguished.
MMTC Limited v. Vedanta Limited (2019) 4 SCC 163 :
[2019] 3 SCR 1023; State of Chhattisgarh and Ors. v.
Sal Udyog Pvt. Ltd. (2022) 2 SCC 275; NHAI v. M.
Hakeem (2021) 9 SCC 1; PSA SICAL Terminals (P) Ltd.
v. Board of Trustees of V.O. Chidambranar Port Trust
Tuticorin and Ors. (2021) SCC Online SC 508 Haryana
Tourism Ltd. v. Kandhari Beverages Ltd. (2022) 3 SCC
237; UHL Power Company Limited v. State of Himachal
Pradesh (2022) 4 SCC 116 - referred to.
Case Law Reference
(2022) 3 SCC 237
referred to
Para 9.4
[2019] 3 SCR 1023
referred to
Para 10.1
(2022) 2 SCC 275
referred to
Para 10.2
(2021) 9 SCC 1
referred to
Para 10.8
(2022) 4 SCC 116
referred to
Para 13.6
[2014] 13 SCR 895
relied on
Para 18, 37
[2018] 12 SCR 829
distinguished
Para 34
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(2022) 1 SCC 131
relied on
Para 36, 37
[2019] 7 SCR 522
relied on
Para 37
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3615
of 2023.
From the Judgment and Order dated 08.03.2021 of the High Court
of Judicature at Bombay at Goa in COMAP No. 12 of 2019.
With
Civil Appeal No. 3616 of 2023.
R. Venkataramani, AG, Ritin Rai, Parag P. Tripathi, Sr. Advs.,
Ms. Ruchira Gupta, Shishir Deshpande, Shreeharsha Peechara, Ms.
Nancy Shah, Mahesh Agarwal, Rishi Agrawala, Ms. Niyati Kohli, Ms.
Sukriti Bhatnagar, Anirudh Dusaj, Rajesh Kumar, E. C. Agrawala, Ms.
Anjali C., Surendra Khot, Agni Som, Advs. for the appearing parties.
The Judgment of the Court was delivered by
DINESH MAHESHWARI, J.
Table of Contents*
Preliminary ........................................................................................... 2
Relevant factual aspects and background ........................................... 3
Arbitration proceedings and award...................................................... 7
Challenge to the award under Section 34 of the Act ........................... 9
The appeal under Section 37 of the Act .............................................11
Rival Submissions .............................................................................. 15
Relevant Statutory provisions ............................................................ 29
The scope of challenge to an arbitral award under Section 34
and the scope of appeal under Section 37 of the Act ........................ 33
Questions relating to proceedings and procedure .............................. 41
The award relating to variable charges on use of alternate fuel ....... 44
The award relating to downrating of the plant................................... 58
The award relating to variable charges on 4 MW power .................. 65
The award relating to netting-out principle ........................................ 67
Interest in award................................................................................ 68
Final comments, observations, and conclusion................................... 71
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA
* Ed. Note: Pagination in the Table of Contents is as per the original judgment.
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Preliminary
Leave granted.
2. These two appeals, preferred against the judgment and order
dated 08.03.2021, as passed by the High Court of Judicature at Bombay,
Goa Bench in Commercial Appeal No. 12 of 2019, one by Reliance
Infrastructure Limited1, being the appeal arising out of SLP (Civil)
No.8493 of 2021; and another by the State of Goa2, being the appeal
arising out of SLP (Civil) No.16778 of 2021, have been considered
together and are taken up for disposal by this common judgment.
3. By way of the impugned judgment and order dated 08.03.2021,
while dealing with an appeal under Section 37 of the Arbitration and
Conciliation Act, 19963 read with Section 13 of the Commercial Courts,
Commercial Division and Commercial Appellate Divisions of High Courts
Act, 2015, the High Court has proceeded to upset the order dated
12.09.2019, as passed by the Principal District & Sessions Judge, North
Goa, Panjim4 in dismissing the application filed under Section 34 of the
Act; and has partially set aside the award dated 16.02.2018, as made by
the Arbitral Tribunal comprising of the Sole Arbitrator, a former Judge of
this Court.
Relevant factual aspects and background
4. Shorn of unnecessary details, the relevant factual aspects could
be usefully summarised as follows:
4.1. On 10.01.1997, the claimant entered into a Power Purchase
Agreement5 with the Government of Goa to commission and operate a
power generation station of 39.8 MW capacity for the period 14.08.1999
to 13.08.2014. The power station was to use 'Naphtha' as fuel to generate
electricity along with a provision for using 'Alternate Fuel'. The claimant
commenced commercial operation on 14.08.1999.
4.2. Various supplementary agreements were entered into
between the parties from September 1997 to November 2001. By the
First Supplementary Power Purchase Agreement dated 10.09.1997, it
was mutually agreed to convert the generating station from Open Cycle
1 Hereinafter also referred to as 'the claimant'.
2 Hereinafter also referred to as 'the State' or 'the Government of Goa'.
3 Hereinafter also referred to as 'the Act of 1996' or simply 'the Act'.
4 Hereinafter also referred to as 'the Commercial Court'.
5 'PPA', for short.
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Generating Station into a Combined Cycle Generating Station with a
capacity of 48 MW. The Contracted Capacity was increased from 39402
KW to 46560 KW. Furthermore, the claimant was authorized to sell
power in excess of 39.8 MW to consumers due to the combined cycle
operation. On 20.09.2000, the Second Supplementary Agreement was
executed between the parties, which enabled the claimant to conduct
certain direct sales of power to consumers with permission. The
computation of tariff was based on the 'New Rated Capacity,' which
was deemed to be the Contracted Capacity. The agreement also mandated
the provision of backup power by the Government of Goa to the claimant
for distribution to its consumers in case of scheduled or unscheduled
outages, as specified in the agreement. On 05.11.2001, the parties entered
into the Third Supplementary Agreement, which specified a reduction in
supply of power by the claimant to the extent of 19.8 MW from March
2004 until the end of the PPA term, i.e., 13.08.2014 This 19.8 MW
quantum was designated as 'New Rated Capacity'.
4.3. It appears that in view of power being costly, the Government
of Goa intended to stop the purchase from the claimant and addressed a
letter to that effect on 20.03.2013. However, in view of a provision in
the PPA for use of alternate fuel, by its communication dated 21.03.2013,
the claimant gave its proposal to the Government of Goa to supply power
by using Regassified Liquefied Natural Gas6, which was being brought
up to Goa by GAIL by its pipeline. The claimant gave a formula by
which the per unit cost of power would be billed by it to the Government
of Goa. This particular aspect relating to the claimant's proposal to switch
over to the alternate fuel and charges payable in that regard has formed
a major part of contentions in this case. Hence, a little elaboration shall
be apposite.
4.3.1. On 26.04.2013, the Government of Goa replied to the
claimant's letter dated 21.03.2013, inter alia, in the following terms: -
"In view of your offer under reference, the Government
has decided to continue to purchase power @ Rs. 8.58 per unit
w.e.f. 01/04/2013 as per your formula proposed in the letter
dated 21/03/2013 considering the present rates of fuel and dollar.
The same may be noted for records and incorporated in your power
bills. The revised fixed rate shall be applicable from 1st April 2013."
6 'RLNG', for short.
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA
[DINESH MAHESHWARI, J.]
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4.3.2. On 30.04.2013, the claimant, however, sought a clarification
from the Government regarding the formula-based tariff payable for the
supply of electricity, inter alia, in the following words: -
"1. With regard to the price mentioned in our proposal dated
21.03.2013, the tariff of Rs.8.58/unit is based on the
prevailing RLNG price ($17.2/mmbtu) and INR/USD exchange
rate (1 $ = Rs 54) and is therefore not fixed. The same shall vary
depending upon the fuel price in the market and the INR/USD
exchange rate."
4.3.3. It has been the case of the claimant that initially, the
Government of Goa agreed to a fixed per unit price but, when it was
clarified that the price would not be fixed, the Government agreed to
purchase the same considering the prevailing rates of fuel and dollar
upto the expiry of the PPA while requiring that for this purpose,
documentation showing the price of fuel and dollar be incorporated in
the bills raised by the claimant. In this regard, a communication received
by the claimant from the Chief Electrical Engineer dated 23.05.2013 has
been relied upon. For its relevance, this communication dated 23.05.2013
is reproduced, in extenso, as under : -
"GOVERNMENT OF GOA
ELECTRICTY DEPARTMENT
OFFICE OF THE CHIEF ELECTRICAL ENGINEER
No. 20/3/CEE/Tech/13-14/824
Date: 23.05.2013
To,
M/s. Reliance Infrastructure Limited,
Goa Power Station,
Opp. Sancoale Industrial Estate,
Zurinagar, Goa- 403 726
Sub: Proposal for supply of power on RLNG
Ref: 1. RINFRA/GPS/GOG/2013/16 dt. 21.03.2013 addressed to
this office and a copy enclosed to the Hon'ble Chief Minister,
State of Goa and others.
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Sir,
.....
In view of your offer under reference, the Government has
decided to continue to purchase power as per your formulae
proposed in the letter dated 21.03.2013 considering the prevailing
rates of fuel and dollar up to the expiry of the existing PPA. The
same may be noted for records and incorporated in your power
bills with due documentations of prices of fuel and dollar
...
Yours faithfully
Sd/-
(S. Lekshminath)
Chief Electrical Engineer"
4.3.4. It has also been the case of the claimant that in fact, the
decision to purchase power at fluctuating price was approved by a decision
taken by the Cabinet Committee headed by the Chief Minister of the
State of Goa.
4.4. The claimant's grievance has been that its monthly invoices
were paid upto March 2013 and monthly invoice for April 2013 was paid
partly; but, from May 2013 onwards, its invoices were not paid. In regard
to the unpaid invoices of the claimant, partly for April 2013 and thereafter
from May 2013 till April 2014 (after which the plant was shut down),
several communications were exchanged between the parties and the
claimant submitted revised invoices but the grievance of the claimant
remained unredressed.
4.5. On 19.05.2015, the claimant filed a petition before the Joint
Electricity Regulatory Commission7 for recovery of its dues. The State
submitted before JERC that an Arbitrator be appointed in terms of PPA
to adjudicate upon the disputes. On 11.12.2015, JERC, based on
agreement of both the parties, referred the disputes to the Sole Arbitrator
Mr. Justice B. P. Singh (Former Judge of this Court) in pursuance of its
powers under Section 86(1)(f) of the Electricity Act, 2003. The arbitration
proceedings under this reference have led to the present appeals.
7 'JERC', for short.
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Arbitration proceedings and award
5. After long-drawn proceedings of arbitration with filing of claim,
reply and counter claim, rejoinder, sur-rejoinder, amendment of counter
claim, filing of various applications and written submissions, the Arbitral
Tribunal ultimately passed the award dated 16.02.2018 whereby it directed
the State to pay to the claimant a sum of Rs. 278.29 crore (principal
amount) together with interest for the period up to 31.10.2017; to pay
further interest from 31.10.2017 at the rate of 15% per annum from the
date of award until the date of full payment of the amount including
interest as on the date of the award until effective payment/realization;
and further clarified that in case the non-claimant would pay the entire
amount together with interest within two months from the date of the
award, it shall not be liable for payment of interest after the date of the
award.
5.1. We shall refer to the findings of the Arbitral Tribunal, to the
extent relevant, at the appropriate juncture hereafter. However, to take
into comprehension as to what was presented to the Arbitral Tribunal by
way of dispute and as to what material points called for determination, it
may be noticed that the parties jointly formulated the issues on which
the Arbitral Tribunal was required to give its ruling; and the same were
duly taken note of by the Arbitral Tribunal in the following words:-
"34. The parties in the joint statement submitted by them on
computation of the claim amount payable by the Respondent to
the claimant have themselves succinctly formulated the issues on
which this Tribunal is required to give its ruling, which are as
follows:
a) Contention of the Respondent that Rated Capacity is required
to be downrated from September 2000 till the expiry of the PPA,
i.e. 13th August, 2014, relying on the draft Notification issued by
the Ministry of Power, Government of India referred to by the
Respondent during its arguments.
b) Respondent's claim for credit to be given to it of 4 MW for 12
hours on daily basis for weekdays in computing the Tariff Heat
Rate for arriving at the Fuel Cost (Variable Charges) from January,
2009 till 13th August 2014. The Respondent has made this claim
by referring to letters dated 2nd January, 2009 and 19th January,
2009.
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c) Contention of the respondent that the claimant had agreed to
supply power based on a fixed rate of Fuel price and a fixed rate
of exchange in terms of US Dollar to INR for supply of power
using RLNG as fuel from June, 2013 onwards;
d) Claim of the Claimant that it is entitled to Fuel Facilitation
Charges for supply of power by using RLNG from June 2013,
and
e) Contention of the respondent that back-up power supplied by it
from May, 2014 till 13th August, 2014 was 1.25 times of Rs. 3.78/
kWh, being the rate specified by the respondent in its letter dated
18th September, 2014."
5.2. Out of the five issues aforementioned, four were decided by
the Arbitral Tribunal in favour of the claimant (except that relating to
fuel facilitation charges). The parties also presented various alternatives
of calculation for arriving at the amount payable in terms of findings.
Having examined these alternatives and with reference to its findings,
the Tribunal made the award in the following terms: -
"77. This Tribunal after considering all aspects of the matter has
decided four of the issues in favour of the Claimant, and one in
favour of the Respondent. The scenario attracted in view of the
above findings is Scenario 22. Accordingly, the Claimant will be
entitled to a sum of Rs.119.32 Crores by way of principal amount
and a sum of Rs 158.98 Crores by way of interest for the period
up to 31.10.2017 totaling Rs. 278.29 Crores. For the period
subsequent to 31st October 2017, the Claimant shall be entitled to
interest calculated at the same rate as for the period prior to that
date, till the date of the award. The Claimant shall also be entitled
to payment of interest at the rate of 15% per annum on the above
amount from the date of the award till the actual payment of the
full amount awarded together with interest. If the full payment of
the amount awarded together with interest is made within the
period of two months from the date of the award, the Respondent
shall not be liable to pay interest for any period subsequent to the
date of the award, otherwise, it shall be liable to pay interest at
the rate of 15% per annum from the date of the award till the date
of payment/realisation in full. In this view of the matter the Tribunal
makes the following.
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AWARD
1. The Respondent shall pay to the Claimant a sum of Rs.278.29
Crores by way of payment of the principal amount together with
interest for the period up to October 31, 2017.
2. The Respondent shall pay to the Claimant interest on the above
amount, for the period from October 31, 2017 till the date of the
award, calculated at the same rate as for the period prior to
October, 31,2017.
3. The Respondent shall pay to the Claimant interest on the total
amount awarded together with interest payable on October 31,
2017, at the rate of 15% per annum from the date of the Award
till full payment of the amount, including interest as on the date of
the Award is paid/realised.
4. Provided that, in case the Respondent pays to the Claimant the
entire amount together with interest awarded within two months
of the date of the Award, it shall not be liable to pay interest for
the period subsequent to the date of the Award.
5. The parties shall bear their own respective costs of this
proceeding."
Challenge to the award under Section 34 of the Act
6. The award so made by the Arbitral Tribunal was challenged by
the State under Section 34 of the Act before the Commercial Court. A
vast variety of contentions urged on behalf of the parties were duly
considered by the Court and the relevant points were answered in favour
of the claimant and thereby, the award was upheld while rejecting the
application under Section 34.
6.1. The relevant observations and findings of the Commercial
Court, to the extent necessary, shall be referred hereafter at the
appropriate stage. However, we may extract the points for determination
formulated by the Commercial Court and their answers, as indicated in
the impugned judgment and order dated 12.09.2019, as follows: -
"27. Following points arise for my determination:
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The appeal under Section 37 of the Act
7.