APHC010143982021 IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI (Special Original Jurisdiction) [3494] THURSDAY, THE SIXTH DAY OF FEBRUARY TWO THOUSAND AND TWENTY FIVE PRESENT THE HONOURABLE SRI JUSTICE NINALA JAYASURYA THE HONOURABLE SMT JUSTICE SUMATHI JAGADAM COMMERCIAL COURT APPEAL NO: 17 OF 2021 Between: Rashtriya Ispat Nigam Limited, (RINL), ...APPELLANT AND M/s Mauria Udyog Limited and Others ...RESPONDENT(S) Counsel for the Appellant: 1. VIVEK CHANDRA SEKHAR S Counsel for the Respondent(S): 1. S RAJAN 2 The Court made the following: (Per NJS,J) ORDER: The present appeal under Section 13 of the Commercial Courts Act, R/W Section 37 of the Arbitration and Conciliation Act 1996 (for short “the Act”), has been preferred by the appellant-petitioner aggrieved by the Order dated 07.01.2021 in CAOP No.41 of 2018, on the file of the Court of the Special Judge for Trial and Disposal of Commercial Disputes, Visakhapatnam, whereby the Arbitral Award dated 18.06.2018 / 18.07.2018 of the majority members was set aside in part only in respect of the rate of interest. 2) For the sake of convenience, the appellant-Rashtriya Ispat Nigam Limited is referred to hereinafter as “the RINL” and the 1st respondent as the claimant. BRIEF FACTS: 3) RINL is a Public Sector Undertaking manufacturing steel and allied products appointed „the claimant‟ as a consignment agent under agreement number VSP/MKTG/SY/19 of 2006-2007 dated 09.10.2009, for a period of seven years with effect from 31.03.2008 to 31.03.2015. After the expiry of the said seven years period, RINL addressed letters extending the consignment agency contract on certain terms and conditions, but the claimant vide letter dated 20.02.2015, as also subsequent communications informed „RINL‟ that it would execute the work during the extended period as per the terms and conditions of the 3 Contract dated 09.10.2009, referred to above and continued to discharge its obligations. RINL, however, withheld an amount of ₹30,71,428/- from the bills on the premise that hard standing and yard development in the stock yard was not done till December 2008. It had also withheld 10% of the consideration amount from March 2015 to a tune of ₹1,04,62,801/- as on December, 2016 on the premise that the difference in rates between the existing contract and the new contract would have to be recovered. Thus, disputes arose between the parties, which ultimately lead to invocation of Arbitration Clause. 4) On entering reference, before the Arbitral Tribunal the claimant filed claim statement for release of penalty amount of ₹30,71,428 with interest of ₹48,53,964.54 ps., at the rate of 18% p.a., from the date of recovery to 28.02.2017. The claimant also sought refund of ₹1,04,62,801/- deducted from its bills during 2015-2016 and interest of ₹15,97,746.31 ps., at the rate of 18% per annum up to 20.02.2017. Subsequently, the claimant filed an amended statement of claim, mentioning that the illegally withheld 10% of the bill amount as on 31.10.2017 is ₹1,33,13,650/-. According to the amended claim, the total amount of ₹2,60,63,162 (gross, value of unpaid invoice of ₹2,18,87,219/-, plus interest for delay in payment of invoices of ₹41,75,943) has to be paid to the claimant towards the unpaid invoices and interest on the delayed payment of invoices, with further interest at the rate of 18% per annum, till the date of Award. 4 5) RINL filed its defence statement, inter alia, contending that the claimant being a consignment agency/contractor should fulfill its obligations under the contract, in particular, those relating to hard standing and basic infrastructure. With regard to conditional extensions, it stated that nothing prevented the claimant to simply refuse to accept the extensions. While contending that the claimant is not entitled to the claims, muchless the interest thereon, the RINL raised a counter claim to a tune of ₹1,32,46,669/-, towards difference of rates and Rs.22,00,000/- towards compensation. 6) The majority members of the learned Arbitral Tribunal (Respondents 2 and 3 herein) after considering documentary evidence vide Award dated 18.06.2018, awarded a sum of ₹4,29,05,335/- to the claimant with future interest at the rate of 9% per annum from 01.07.2018, till actual date of payment to the claimant, while allowing the counter claim partly for an amount of Rs.5,06,000/-. The 4th respondent passed a separate Award dated 18.07.2018. 7) Aggrieved by the same, RINL filed CAOP No.14 of 2018 on the file of the Court of Special Judge for Trial and Disposal of Commercial Disputes, Visakhapatnam under Section 34 of the Act. The learned Commercial Court, after considering the matter, partly allowed the said O.P., by reducing the pendent lite interest from 18% to 9% p.a. 5 Aggrieved by the order of the learned Commercial Court, RINL preferred the present Appeal. 8) Heard Mr.S. Vivek Chandra Sekhar, learned counsel for the appellant and Mr. S. Rajan, Learned counsel for the respondent-claimant. Perused the material on record. 9) Learned counsel for the RINL, inter alia, contended that the learned Commercial Court failed to appreciate that the learned Arbitral Tribunal had not considered the contentions raised on behalf of the RINL in a correct perspective. He contends that the learned Tribunal i.e., majority arbitrators erred in holding that there is no new contract stipulating the rates and observing that there is no contract at all and the learned Commercial Court failed to appreciate these aspects. He also contends that if the claimant was not agreeable for the revised rates, it should not have accepted the material and that having accepted the same and proceeded with the works, the claimant virtually accepted the offer and that the learned Arbitral Tribunal as also the learned Commercial Court went wrong in not considering the same in the right perspective. He contends that the learned Commercial Court failed to appreciate that there is no stipulation for payment of interest on delayed payments as per the contract, but the learned Arbitral Tribunal awarded interest on delayed payments, which is not sustainable. He submits that in fact, interest was not claimed at the first instance, but only by way of amendment of the 6 claim. Making the said submissions, and that the Award to the extent as confirmed by the Commercial Court is perverse and contrary to the public policy of India, the learned counsel seeks to set aside the same and allow the appeal. 10) On the other hand, the learned counsel for the claimant made submissions to sustain order under challenge. He contends that the learned Arbitral Tribunal examined the claims meticulously duly considering the material on record and by a majority Award allowed the claims with supporting reasons, which are plausible and the learned Commercial Court after thoroughly appreciating the matter with reference to the provisions of the Act and settled legal position, was not inclined to interfere with the conclusions arrived at by the learned Arbitral Tribunal with regard to the merits of the case, except reducing the interest portion from 18% to 9% p.a. He contends that the scope of interference by the Appellate Court in the order passed under Section 34 of the Act, is much more narrower and only in the event the findings recorded by the Arbitral Tribunal are perverse, contrary to the terms of the agreement or the Arbitral Award is in conflict with the public policy of India, interference may be warranted, which is lacking in the present case. Relying on the decisions of the Hon‟ble Supreme Court of India in Reliance Infrastructure Ltd., v State of Goa1, and Bombay Slum 1 2023 LiveLaw (SC) 416 = 2018 (9) SCC 266 7 Redevelopment Corporation Pvt Ltd., v Samir Nariain Bhojwani2, learned counsel seeks dismissal of the Appeal. He also contended that there is no clause in the agreement prohibiting the payment of interest and granting of the same by the learned Arbitral Tribunal is not against law or treated as perverse or contrary to the public policy of India. 11) On an appreciation of the rival contentions, the point that falls for consideration is – “Whether the order under challenge warrants interference by this Court, in the facts and circumstances of the case?” 12) Before dealing with the point for consideration, it may be appropriate to mention that the learned Arbitral Tribunal on the basis of the pleadings framed the following issues for adjudication: 1) Whether the stipulations contained in the Respondent‟s extension letters / agreement are valid or not? Either way its effect? 2) Whether the Claimant is entitled for the claims made? 3) Whether the Respondent is entitled to the counter claims? 4) Whether the parties or either of them is entitled to interest? If so at what rate and for which period? 5) To what relief, if any, are the Claimants or Respondents entitled to? 13) With regard to Issue No.1, the learned majority members noted the period / dates concerning the several extensions of the existing contract, pending appointment of new consignment agency with stipulation to the effect that the extensions of existing contract shall be till the specified dates or till commencement of work by the new contractor, whichever is lower with the existing rates or new contract rates, whichever is earlier(as 2 Civil Appeal No.7247 of 2024 (Supreme Court of India) dated 08.07.2024 8 per the respective base dates as applicable) as per the board approved guidelines. While taking note that the claimant promptly informed that they are giving their acceptance for extension of existing contract as per the terms and conditions of the original contract agreement dated 09.10.2009, it recorded its conclusions that RINL, in view of a claimant‟s counter offer and non-receipt of unconditional acceptance, could have stopped sending their consignments to the claimant‟s yard, which was never done and probably it suited it to save the company (RINL) from losses on account of stoppage of their work abruptly. It had also opined that in the offer made by RINL for extension, the consideration is quiet uncertain, that none of the parties knew as to when and what rate will be finalized with the new contractor and further that the offer declined by the claimant could not take the shape of an agreement, whereas its counter offer has been accepted by the RINL by its conduct and thus the contract was completed. The learned Arbitral Tribunal ultimately concluded that the stipulation contained in the RINL extension letters have no validity and not enforceable and answered the issue in favour of the claimant holding that the amount withheld is liable to be released. 14) In so far as the issues pertaining to the claims, as made by the claimant and the counter claim of RINL, the learned Arbitral Tribunal dealt with the matter elaborately and recorded a finding that RINL could not substantiate that it suffered any kind of loss and therefore, the penalty 9 levied was baseless and the claimant is entitled for refund of the same. In so far as the counter claims, it awarded an amount of ₹5,06,000/- (towards the loss sustained by the respondent as the claimant stopped the work for 3 days) and so far as the claim of ₹1,32,46,669 towards lower rates quoted by the incoming consignment agency, the learned Arbitral Tribunal held that the said claim was solely based on assumption, as no contract came into existence and therefore the RINL is not entitled for the same. 15) As regards, the Issue No.4 i.e., entitlement to interest, the learned Tribunal dealt with the same item wise i.e., (i) Interest on Amount of Penalty Deducted; (ii) Interest on withheld 10% amount from Bills; (iii) Interest on delayed payment of invoices and (iv) Interest on unpaid invoices and period wise. It had accordingly awarded interest on delayed payments, pendente lite interest and future interest with detailed reasoning and granted the following reliefs: (1) The respondents shall pay to the claimant a sum of (Rs.4,34,11,355 minus Rs.5,06,000 = Rs.4,29,05,355) (Four Crore Twenty Nine Lakh Five Thousand Three Hundred Fifty Five) on or before 31.07.2018. (2) The Respondents shall pay costs to claimant by the aforesaid date. (3) In case the Respondents fails to comply with the direction NO.1 and 2 above by the appointed date, the respondents shall be liable to pay future interest on the sums mentioned in direction No.1 and 2 @ 9% per annum w.e.f. 01.07.2018 till the actual date of payment to the claimant. 10 16) In the O.P., before the Commercial Court, it was, inter alia, contended on behalf of the RINL, that that in the majority award rendered by respondent Nos.2 and 3, they failed to appreciate the terms and conditions stipulated in the letters awarding the agency and have committed an error apparent on the face of the Award in observing that there is no concluded contract at all. It was contended that the majority award rendered by the learned Arbitrators/respondent Nos.2 and 3 is opposed to public policy of India as there is no stipulation for payment of interest on delayed payment as per the contract and in the absence of the same, granting interest at the rate of 18% p.a., is contrary to law, highly excessive and arbitrary. On the contrary, it was argued on behalf of the claimant that RINL failed to prove any of the ingredients stipulated under Section 34 (2) of the Act for setting aside the Award, that the interest granted by the arbitrators, while rendering the Award is not against Law or prohibited under Law. The Learned Commercial Court after considering the matter with reference to the rival contentions recorded its categorical findings in the following terms – “22) As seen from the majority award and the minority award rendered by the learned Arbitral Tribunal they have categorically discussed all the submissions made by respective counsel of both parties at length and came to a right conclusion that a new rate offered by the petitioner i.e., Rashtriya Ispat Nigam Limited, Visakhapatnam Steel Plant was not acceptable to the first respondent and the new rate never came into existence by the time of completion 11 of existence period of contract. Therefore, there is no other way to go except to adopt the old rates.” “In view of the submissions made by the respective senior counsel of both parties as seen from the award rendered by majority arbitrators dt.18.06.2018 and the minority arbitrator dt.18.07.2018 it is evident that the learned Arbitral Tribunal after considering entire material available on record including the documents relied upon by both parties and in view of the submissions made by the respective counsel of both parties in detail came to a conclusion that the terms of the contract between the parties can be proved not only by their words but also by their conduct. The Law is well settled that the offer can be accepted by conduct. The general rule is that an offer is not accepted by mere silence on the part of offeree, yet it does not mean that an acceptance always has to be given in so many words. Under certain circumstances, offeree‟s silence coupled with his conduct, which takes the form of opposite act, may constitute an acceptance of an agreement sub-silentio.” 17) Referring to the jurisdiction under Section 34 of the Act and the decisions of the Hon‟ble Supreme Court of India in M/s Dyna Technologies Pvt. Ltd., v M/s. Cromption Greaves Ltd.,3 McDermott international Inc. v Burn Standard C. Ltd., and Ors.,4; Steel Authority of India v Gupta Brothers5, the learned Commercial Court categorically recorded its findings opining that the majority Arbitrators dealt with all the aspects while allowing the additional claim made by the claimant during the pendency of the arbitration proceedings and that no grounds are made out to interfere with the Award. 3 2019 SCC OnLine SC 1656 4 (2006) 11 SCC 181 5 (2009) 10 SCC 63 12 18) In so far the claim for interest is concerned, the learned Commercial Court formulated a separate point for consideration and referring to Section 31 (7)(a) of the Act, Section 3 of the Interest Act as also the decision of the Hon‟ble Apex Court in Reliance Cellulose Products v ONGC Ltd.,6 recorded its conclusions at para 34 of the judgment and inter alia held that in the present case, agreement is silent with regard to stipulation for payment of interest. However, so far as the award of the majority Arbitrators granting interest @18% p.a., on unpaid bills and pendent lite interest, it reduced the same to 9% p.a., holding that awarding rate of interest at 18% p.a., is highly excessive and arbitrary. 19) Assailing the order of the learned Commercial Court to the extent it is adverse to the interest of the appellant, Mr. Vivek Chandra Sekhar advanced arguments as noted in para-9 of the order. However, the learned Arbitral Tribunal and the learned Commercial Court thoroughly discussed about the claimant accepting the extension of the existing contract as per the terms and conditions of the original contract agreement dated 09.10.2009 and continuation of consignments by the RINL to the claimant without any demur. The majority members of the Arbitral Tribunal on the basis of material available on record, recorded their conclusion to the effect that the stipulation contained in the letters of extension by the RINL are not enforceable and it acted upon the counter offer of the claimant to continue on the existing rates by its conduct. The 6 (2018) 9 SCC 266 13 said conclusions arrived at by the learned Arbitral Tribunal, were not interfered with by the learned Commercial Court in view of the settled legal position that the scope under Section 34 of the Act, is limited. It is equally settled that in an appeal under Section 37 of the Act, the scope is much narrower. 20) In Parsa Kente Collieries Ltd., v Rajasthan Rajya Vidyut Nigam Ltd.,7 it was inter alia contended that the interpretation by the learned arbitrator of the clauses of the agreement was plausible and merely because some other view was possible, the High Court is not justified in interfering with the interpretation s/findings recorded by the sole arbitrator and that too in exercise of power under Section 37 of the Act. Partly allowing the said case, the Hon‟ble Supreme Court of India inter alia held that it was pure and simple case of interpretation of the agreement, which does not involve any public policy. The Hon‟ble Supreme Court of India also referred to the earlier decisions in Mc.Dermott International Inc., case (4 supra) and Rashtriya Ispat Nigam Ltd., v Devan Chand Ram Saran8 including the decision in Associate Builder v D.D.A.9 wherein it was held that when a Court is applying the public policy test to an arbitration award it does not act as a court of appeal and consequently, errors of facts cannot be corrected. 7 (2019) 7 SCC 236 8 (2012) 5 SCC 306 9 (2015) 3 SCC 49 14 21) In so far as the contentions with regard to awarding of interest, this Court see no reason to hold that the order of the learned Commercial Court is perverse. In fact, it reduced the interest on unpaid bills as awarded by the majority arbitrators @ 18% per annum to 9% p.a., holding that the same is highly excessive and arbitrary. Though no reasons were assigned, the learned Commercial Court in its discussion reduced the rate of interest. Be that as it may. 22) In Reliance Infrastructures case (1 supra) the Hon‟ble Supreme court of India at para 14 inter alia held as follows: “14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision.” 23) In Bombay Slum Redevelopment Corporation Pvt Ltd., case (2 supra) the Hon‟ble Supreme Court of India after referring to the various legal precedents including MMTC Ltd., v Vedanta Ltd.,10 UHL Power Company Ltd., v State of Himachal Pradesh11 at para 16 inter alia held thus: “The jurisdiction of the Appellate Court dealing with an appeal under Section 37 against the judgment in a petition under Section 34 is more constrained than the jurisdiction of the court dealing with a petition 10 (2019) 4 SCC 163 11 (2022) 4 SCC 116 15 under Section 34. It is the duty of the Appellate court to consider whether Section 34 Court has remained confined to the grounds of challenge that are available in a petition under Section 34. The ultimate function of the Appellate Court under Section 37 is to decide whether the jurisdiction under Section 34 has been exercised rightly or wrongly. While doing so, the Appellate court can exercise the same power and jurisdiction that Section 34 Court possesses with the same constraints.” 24) In the light of the expression of the Hon‟ble Supreme court referred to above, this Court considering the matter in its entirety and on the touch stone of Section 34 of the Act holds that the learned Commercial Court is well within its jurisdiction and was right in its approach, the order under challenge is well within jurisdiction and as such warrants no interference by this Court in the appellate jurisdiction under Section 37 of the Act. The point is accordingly answered against RINL – Appellant. 25) In the result, the Appeal is dismissed. No order as to costs. 26) Consequently, the Miscellaneous Applications pending, if any, shall also stand dismissed. NINALA JAYASURYA,J SUMATHI JAGADAM,J Date:06.02.2025 ssv 16 THE HONOURABLE SRI JUSTICE NINALA JAYASURYA THE HONOURABLE SMT JUSTICE SUMATHI JAGADAM COMMERCIAL COURT APPEAL NO: 17 OF 2021 Date:06.02.2025. ssv