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2013 DIGILAW 7 (CAL)

DAMODAR VALLEY CORPORATION v. GRAPHITE INDIA LTD.

2013-01-04

SANJIB BANERJEE

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JUDGMENT : - The respondent is not represented even at the second call. 2. A short issue has been raised by the petitioner in course of the present proceedings under Section 34 of the Arbitration and Conciliation Act, 1996. The petition was filed within the time permitted by the provision. 3. Under an agreement of August 19, 1994 the petitioner agreed to supply electrical energy to the respondent at its manufacturing unit. Among the charges that the respondent had to pay to the petitioner were a demand charge and a minimum guaranteed energy charge (MGE). Disputes arose between the parties following the accidental breakdown of a key equipment at the respondent’s manufacturing facility and the inability of the respondent to thereafter use electrical energy up to the minimum guaranteed amount for a substantial period. 4. The disputes were referred to the arbitration of a tribunal comprising three members. The tribunal unanimously found that the respondent’s claim that the petitioner was not entitled to the demand charge was unjustified. The tribunal, however, differed on the issue of MGE. Two of the members held that the respondent was covered by the force majeure clause, but the third was of the opinion that the proviso to the relevant clause did not permit the respondent to seek remission of MGE charges for the relevant period. The challenge herein is only on such aspect: as to whether the respondent was liable to pay the MGE charges during the period of the shutdown. The relevant issue that was framed by the arbitral tribunal was as follows: “Issue – VII : Whether as per clause 4 of the Agreement, GIL is entitled to pro-rata reduction in Demand Charge and MGE charge because of breakdown in Unit-3 of their plant from 2.10.2003 to 24.10.2003, which is stated to be a “Force Majeure” by GIL. 5. The issue was answered thus by the presiding arbitrator in which one of the other arbitrators concurred: “So this breakdown was unanticipated and unwarranted and can reasonably be taken as ‘accidental’ i.e. it occurred by accident. Thus it comes under ‘force Majeure’ conditions.” 6. It is necessary first to see the relevant clause in the power supply agreement of August 19, 1994: “Clause-4 Both the parties shall ensure compliance with the terms of this Agreement. Thus it comes under ‘force Majeure’ conditions.” 6. It is necessary first to see the relevant clause in the power supply agreement of August 19, 1994: “Clause-4 Both the parties shall ensure compliance with the terms of this Agreement. However, no party shall be liable for any claim for any loss, damage or compensation whatsoever arising out of the failure to carry out the terms of this Agreement or shortage of power supply to the extent that such failure or shortage is due to the Force-Majeure on account of the events such as strike, lock-out, fire, accident, cyclone or any other act of God beyond the control of any party or due to any restraint or regulation of the State Govt. or Central Govt. or any other statutory authority. But any party claiming be benefit under this clause shall satisfy the other party of the existence of such a force and shall make the best endeavour to perform its normal obligations as per terms of this Agreement as soon as possible after the cessation of such Force-Majeure. If at any time the consumer is prevented from receiving or using the electrical energy to be supplied under this Agreement either in whole or in part or if the Corporation is prevented from supplying or unable to supply such electrical energy owing to any one of the aforesaid reasons, then the Demand charges and the guaranteed energy charge as set out in the Schedule-II annexed hereto payable by the consumer shall be reduced in proportion to the ability of the consumer to take or the Corporation to supply such power. Provided that the failure of the consumer to use the electrical energy under the Agreement either in whole or in part due to planned shutdown and/or breakdown of machinery or plant in course of normal operation or shutdown of machinery or plan due to non-availability of raw materials or similar other reasons shall not be a ground for the aforesaid reduction in Demand charge and the Guaranteed energy charge.” 7. The submission before the arbitral tribunal was that the breakdown which occurred at the respondent’s manufacturing facility on October 2, 2003 “was not normal and was actually accidental and wholly beyond (the) control of the respondent.” This impressed the presiding arbitrator. The submission before the arbitral tribunal was that the breakdown which occurred at the respondent’s manufacturing facility on October 2, 2003 “was not normal and was actually accidental and wholly beyond (the) control of the respondent.” This impressed the presiding arbitrator. The presiding arbitrator was of the opinion that if the breakdown was not normal but accidental, then it would not be excepted from the force majeure clause by virtue of the proviso thereto which is, in a sense, an exception to an exception. The presiding arbitrator took into account the fact that the relevant maintenance guide of the manufacturer of the equipment recommended a check-up after one million operations but the breakdown occurred when only 0.4 million operations had been conducted. The presiding arbitrator gave considerable weightage to the opinion of the manufacturer’s expert that such breakdown should not have occurred. It was in the light of these facts that the presiding arbitrator came to a conclusion that the breakdown was not normal and that it was accidental. It is exactly such sentiment which was expressed in the conclusion of the presiding arbitrator as quoted above. 8. However, the proviso to the clause – that which carved out an exception from the exceptional case envisaged by the clause – excluded the remission in case there was “breakdown of machinery or plant in course of normal operation or shutdown of machinery or plant…” The clause did not provide for normal breakdown to be excepted and accidental breakdown to be covered by the force majeure clause. The clause provided for no remission for breakdown of machinery in course of normal operation of the plant. It does not appear from any discussion in the award that the operation at the relevant time was abnormal. That the breakdown was accidental or unprecedented or “not normal” weighed with the presiding arbitrator though the adjective ‘normal’ in the relevant clause is used only to describe the manner of operation and not the nature of breakdown. It appears that the presiding arbitrator posed a wrong question to arrive at a wrong answer. 9. The law of the land provides for the agreement between the parties to govern the conduct of the parties in course of operations covered by the agreement. It appears that the presiding arbitrator posed a wrong question to arrive at a wrong answer. 9. The law of the land provides for the agreement between the parties to govern the conduct of the parties in course of operations covered by the agreement. The relevant clause, including the proviso thereto, has to be seen in its ordinary sense and meaning and the word ‘normal’ therein clearly governs the operation of the machinery or plant at the relevant time and not the nature of the breakdown thereat. 10. To the extent the award has been challenged on the ground that there is an error apparent and perversity writ large therein in the fallacious interpretation of the ordinary words as contained in the proviso to the relevant clause, the same succeeds and the decision of the arbitral tribunal to exempt the respondent from its obligation to pay MGE charges during the period of the shutdown of the third unit at its manufacturing facility between October 2, 2003 and October 24, 2003 is set aside. 11. AP No.212 of 2006 is allowed as above without any order as to costs. Urgent certified photocopies of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.