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2016 DIGILAW 723 (MAD)

Saheli Exports Pvt. Ltd. v. GAIL (India) Limited.

2016-02-23

K.RAVICHANDRABAABU

body2016
JUDGMENT : This application is filed under section 9 of the Arbitration and Conciliation Act 1996, seeking for an order of interim injunction restraining the respondent from issuing/raising any supplementary invoice/debit notes on the applicant based on the take or pay clause in the GSTA for the duration when the applicant was unable to lift gas on account of the applicant having to shut down its plant or reduce generation at its plant on account of the instructions issued by the SLDC to the applicant to reduce/stop generation of power at the applicant's power plant pending the arbitration proceedings. 2. The case of the applicant is as follows: a) The applicant is a company incorporated under the provisions of the Companies Act, 1956 involved in the business of setting up power plants and generating electricity. The respondent is a Central Public Sector Undertaking involved in marketing Natural Gas. The Ministry of Petroleum and Natural Gas has granted permission to the Oil and Natural Gas Corporation Limited for exploration and mining of hydro carbon. Based on the decision taken by the Government of India, the gas marketing function was transferred to the respondent. The applicant was allocated 35,000 standard cubic meters per day of gas by the Ministry of Petroleum and Natural Gas for the purpose of use as fuel at its power plant. A Gas Supply Contract which was entered into between the applicant and the respondent though expired on 31.10.2010, the parties however entered into another agreement dated 23.12.2010 which period in turn came to an end only in December 2015. The applicant is negotiating with the respondent for entering into a fresh agreement for a further period. b) The power generated by the applicant's plant using the gas purchased from the respondent is presently being sold to the Tamil Nadu Generation and Distribution Company (TANGEDCO) under a separate agreement. The gas supplied to the applicant by the respondent cannot be stored and hence the functioning of the plant is dependent on continuous supply of gas. Whenever the power plant is shut down due to any reason or there is any reduction in the quantum of power generation, the applicant either does not draw gas or draw lesser gas. c) The power generated at the applicant's power plant is injected into the grid of the State Government from where power is distributed to consumers across the State. c) The power generated at the applicant's power plant is injected into the grid of the State Government from where power is distributed to consumers across the State. The State Load Dispatch Centre (SLDC) established by the State Government is to ensure integrated operation of the power system in the State and responsible for optimum scheduling and dispatch of electricity within the State. Thus, the SLDC carried out the dispatch by regularly monitoring the demand for power in the State and the availability of power from the various sources. Accordingly, SLDC from time to time issues instructions to the power plants and failure to adhere such instructions would result in serious consequences. On 20.06.2015, the SLDC directed the applicant to reduce its generation by 100% until further instructions in view of the grid conditions. Thus, the applicant has to completely stop generation of power and shut down its plant, which is not within the control and contemplation of the applicant. d) The invoices are raised by the respondent fortnightly in terms of Gas Supply and Transmission Agreement (GSTA) for the quantity of gas lifted by the applicant. Article 5.2 of such agreement prescribes an annual take of pay quantity obligation. The applicant is required to buy such quantity of gas from the respondent. Even if the applicant does not lift such quantity of gas during an year, the applicant is required to pay for such quantity. If the actual quantity of gas lifted is less than the take or pay quantity, even then the applicant is required to pay for quantity of gas not taken also. However, in terms of the agreement, the obligation for pay for quantity does not arise if gas has been utilised by other consumers or when a force majeure event has taken place. e) In view of the above said force majeure clause available in the agreement, the applicant, through letter dated 22.06.2015, informed the respondent and invoked the force majeure clause in the agreement. The respondent through their letter dated 23.06.2015 refused to accept that the instructions from the SLDC was a force majeure event. e) In view of the above said force majeure clause available in the agreement, the applicant, through letter dated 22.06.2015, informed the respondent and invoked the force majeure clause in the agreement. The respondent through their letter dated 23.06.2015 refused to accept that the instructions from the SLDC was a force majeure event. 90% of the daily nominated quantity of gas for the period from April 2015 to December 2015 works out to 60,39,014 SCM of gas however, owing to the backing down instructions issued by the SLDC since June 2015, the applicant has been able to lift only 42,99,387 SCM of gas till 13.12.2015. If the respondent proceeds to ignore the request of the applicant under the force majeure clause and proceed to raise a supplementary invoice, the applicant will have to pay an excess of Rs.3.05 crore to the respondent. If such supplementary invoice is raised, it is required to be paid within a maximum of four days from the date of receipt of such invoice and non payment of such invoice entitles the respondent to stop supply of gas to the applicant without any notice. f) Article 9.5 of the GSTA contemplates that a dispute on whether a particular event is a force majeure event or not is to be resolved in terms of Article 15 of the Agreement. Article 15 of the Agreement deals with dispute resolution including arbitration. Thus, the applicant has invoked the arbitration through their letter dated 08.08.2015 and requested the respondent to name the arbitrators. The respondent has not chosen to do so. Pending resolution of the dispute, if the respondent raises a supplementary invoice, it would cause hardship to the applicant. Hence, the present application is filed for the relief as stated supra. 3. The respondent filed a counter affidavit wherein it is stated as follows: The present application is not maintainable as no cause of action has arisen. No such supplementary invoice has been ever raised during the tenure of contract. The back down instruction issued by the SLDC is not a force majeure event as provided under the agreement. The applicant has been selling the power to various third parties and has been earning huge profit. It is not correct that the applicant is selling power only to TANGEDCO. The back down instruction issued by the SLDC is not a force majeure event as provided under the agreement. The applicant has been selling the power to various third parties and has been earning huge profit. It is not correct that the applicant is selling power only to TANGEDCO. The respondent has not charged any annual MGO on the applicant for the last ten years and MGO invoice will be raised only when the respondent is obliged to pay the same to its upstream seller namely ONGCL. MGO depends on consumption pattern over a period of time and therefore, at this juncture, the respondent will not be knowing as to which are the customers including the applicant will come under MGO. Therefore, the present petition is pre mature filed on the basis of mere assumption and speculation. The agreement entered between the parties expired on 31.12.2015 and the applicant seeks to get an interim order based on a future agreement to be entered into. This court does not have jurisdiction over the matter, since the seat of arbitration is at Delhi as per the agreement. 4. A rejoinder is filed by the applicant wherein it is stated as follows: Though the agreement was to come to an end in September 2015, based an interim order passed in a writ petition filed by the power producers association, the procurement of the power under the earlier agreements was being continued. The issue whether the backing down instruction issued by the SLDC is a force majeure event or not is to be decided only under the arbitration. Therefore, the application is not a pre mature one. Since the agreement was entered into at Chennai, the cause of action has arisen in Chenna. Hence this court has jurisdiction to hear this application. 5. Learned counsel appearing for the applicant after inviting this court's attention to various clauses contained in the agreement, made his submission as follows: i) The arbitral dispute which arises between the parties is as to whether shut down instruction given by State Load Dispatch Centre is a force major or not. Therefore till such dispute is resolved by the arbitral Tribunal, the respondent cannot raise supplementary invoice, as raising of such supplementary invoice would directly have a bearing on the decision to be made in the arbitral proceedings. Therefore till such dispute is resolved by the arbitral Tribunal, the respondent cannot raise supplementary invoice, as raising of such supplementary invoice would directly have a bearing on the decision to be made in the arbitral proceedings. Though the contract came to an end in the month of December 2015, the applicant is continuously getting supply by virtue of an interim order passed by this court in W.P.No.41002 of 2015, wherein the applicant has sought for extension of the contract. The applicant is supplying power only to the Electricity Board. When the applicant is bound to follow the instruction of SLDC without having any other option, the conduct of the applicant is drawing the lesser gas or drawing nil gas at relevant point of time due to such instruction, has to be construed only as a force majeure event which would exclude the applicant from the take or pay quantity obligation. Though the applicant has issued notice invoking arbitration clause there was no response from the respondent. ii) In so far as the jurisdictional issue raised by the respondent is concerned, in view of the decision rendered by the Apex Court reported in 2012(9) SCC 552 , such objection cannot be sustained as the Apex Court has found that the court within whose jurisdiction the cause of action has arisen is also having jurisdiction to entertain the application. Admittedly, the agreement was entered between the parties at Chennai and the applicant is also situated at Chennai and therefore, this court is having jurisdiction. 6. Per Contra, Mr.P.V.S.Giridharan, learned counsel appearing for the respondent submitted as follows: i) This application is not maintainable as no cause of action has arisen as on date to maintain the present application. The prayer sought for in this application is highly pre mature since the occasion for raising the supplementary invoice would arise only at the end of the financial year that too, on happening of two eventualities viz., the reciprocal invoice should have been raised by ONGC on the respondent and that there were no other buyers to utilise the gas which was unutilised by the applicant. In this case, till this date, the ONGC has not raised such invoice against the respondent and therefore, the apprehension of the applicant is highly pre mature. In this case, till this date, the ONGC has not raised such invoice against the respondent and therefore, the apprehension of the applicant is highly pre mature. Even in respect of second eventuality, the liability of the applicant would arise only when the quantum of gas which was not lifted by the applicant was also not raised and utilised by other buyers. Hence fixing the liability would arise only after making the calculation and verification of the entire accounts which will have to be made only at the end of the financial year. Therefore, as such, the apprehension of the applicant that this respondent would raise supplementary invoice against them is highly pre mature and based on presumption and assumption. ii) Even otherwise, assuming that the apprehension of the applicant is having some basis, in view of the clause 12.6 of the agreement which contemplates that the buyer should make the payment even in respect of the disputed liability and thereafter to lodge a claim with the seller, the present application cannot be sustained. iii) The very same clause 12.6 of the agreement came up for consideration before this court and this court in a decision reported in the case of M/s.Soundararaja Mills Limited, rejected similar objection raised by the buyer. Even if such invoice is raised, the applicant has remedy as it can always go before the Arbitrator and agitate the same. The very nature of the application is nothing but indirectly seeking an order against invoking the letter of credit. 7. By way of reply to the above submission made by the learned counsel for the respondent, the learned counsel for the applicant submitted that in case, if this court comes to a conclusion that the application is a pre mature, rights of the parties may be left over to be agitated before the Arbitral proceedings. 8. Heard both sides and perused the materials placed before this court. 9. The applicant is the buyer and the respondent is the seller of natural gas. It is not in dispute between the parties that the contract entered between them expired in the month of December 2015 itself. It is also not in dispute that till this date, no fresh agreement is entered into between the parties or there is an extension of the contract already made. It is not in dispute between the parties that the contract entered between them expired in the month of December 2015 itself. It is also not in dispute that till this date, no fresh agreement is entered into between the parties or there is an extension of the contract already made. However, it is admitted by both sides that the gas is being supplied continuously in pursuant to an interim order made by this court in a writ petition seeking for the relief of extension or renewal of the contract. As the issue before this court is not as to whether the applicant is entitled to get extension or renewal of contract, the continuance of supply of gas is not going to have any bearing on the decision to be made in this application. 10. Therefore, now this court has to see as to what is the arbitral dispute between the parties and pending disposal of such dispute by the Arbitral Tribunal, whether the applicant is entitled to the relief sought for in this application. 11. The case of the applicant is that during the period from April 2015 to December 2015, the applicant could not either lift entire quantity or lift only lesser quantity at a particular point of time only due to the backing down instruction issued by the SLDC and therefore, such non lifting or short lifting of gas by the applicant cannot be put against them for raising a supplementary invoice, as they are protected by force major clause contained in the agreement, which exempts the applicant from the take or pay quantity obligation. 12. Learned counsel for the applicant heavily relied on Article 9.2 of the agreement, which deals with force majeure events to contend that such direction issued by the said Authority viz., SLDC would fall within the meaning of one of such force majeure. On the other hand, the respondent has not accepted the above claim made by the applicant and they disputed that such event is not a force major event at all. Such stand of the respondent is evident from their communication dated 23.06.2015 addressed to the applicant. Consequently, the applicant has sent a communication on 08th August 2015 calling upon the respondent to suggest the panel of three independent persons so as to select anyone of them to act as sole Arbitrator to adjudicate upon the above dispute. Such stand of the respondent is evident from their communication dated 23.06.2015 addressed to the applicant. Consequently, the applicant has sent a communication on 08th August 2015 calling upon the respondent to suggest the panel of three independent persons so as to select anyone of them to act as sole Arbitrator to adjudicate upon the above dispute. It is stated that the respondent is yet to suggest the names. 13. From the above stated facts and circumstances, it is evident that the arbitral dispute between the parties in this case is as to whether the non lifting or short lifting of gas during the relevant point of time based on the instruction issued by the SLDC would fall within the ambit and scope of force major as contained under clause 9.2b of the agreement or not and consequently whether the applicant is liable to pay the charges on the supplementary invoices, if any, raised in future. Undoubtedly Article 15 of the agreement between the parties deals with dispute resolution containing an arbitration clause as well. Therefore, the above said dispute that has arisen between the parties has to be necessarily resolved through the procedure of dispute resolution contemplated under Article 15. Therefore, this court at this stage cannot express any view on the merits of the claim made by the applicant as well as the respondent. However, for the purpose of considering the present interim application, this court has to see as to whether pending such resolution of the dispute between the parties, whether the applicant is entitled to the present interim relief. 14. Admittedly, the injunction sought for in this application is against raising a supplementary invoice which will take place only at the end of the financial year. It is also not in dispute that as per clause 5.2b, the liability of the applicant is to be fixed only as a consequential one if the respondent is obliged to pay such charges to ONGC when they raised an invoice to that effect on the respondent. It is also not in dispute that as per clause 5.2b, the liability of the applicant is to be fixed only as a consequential one if the respondent is obliged to pay such charges to ONGC when they raised an invoice to that effect on the respondent. For better appreciation, clause 5.2b can be looked into which reads as follows : "5.2 Take or Pay Quantity Obligation (TOPQ Obligation): (b) Wherever APM gas from ONGC available in a network/field and GAIL is not under obligation to pay MGO (ToP) to ONGC, GAIL is obliged to pay MGO (ToP), the same shall be recovered on prorate basis subject to maximum of MGO (ToP) liability under respective contracts. No MGO (ToP) on gas price would be applicable individually to consumer(s) in the event the gas has been utilized in the network/field by other consumers and GAIL is not required to pay MGO (ToP) to ONGC." 15. In this case, it is stated by the learned counsel for the respondent that till this date the ONGC has not raised such invoice on the respondent and therefore, the apprehension of the applicant that supplementary invoice will be raised on them, is based on mere presumption and assumption. Likewise, he further submitted that the other eventuality that should take place in this case is that there should have been no other buyers to utilise the quantum of gas which was not lifted by the applicant. Thus he submitted that while taking stock of the accounts with regard to this eventuality itself will be done only at the end of the financial year, the apprehension of the applicant is highly pre mature. I find that the above contention of the learned counsel for the respondent is well founded and that the apprehension of the applicant is totally pre mature. It is not the case of the applicant both such eventuality have taken place already. Even otherwise, when the agreement contains a clause for raising such invoices, the applicant cannot prevent the respondent from raising such invoices in future by way of an interim measure pending disposal of arbitral proceedings since as on date no cause of action has arisen. 16. Even otherwise, when the agreement contains a clause for raising such invoices, the applicant cannot prevent the respondent from raising such invoices in future by way of an interim measure pending disposal of arbitral proceedings since as on date no cause of action has arisen. 16. Needless to say that for seeking a relief before the Court, either as an interim measure or final, there must be a cause of action which should not only exist on the date of initiation of the proceedings and also should continue to survive till the disposal of the lis between the parties. When the cause of action itself does not exist on the date of the presentation of the case, the survival of the same, during the pendency of the proceedings, does not arise at all. This is what the position in this case. In fact, the action of the applicant herein is like requesting a person to name a baby yet to born, of course, whose sex is also not known! 17. Even assuming that there is a cause of action and that the application is not pre mature, this court is inclined to dismiss the application, without any hesitation, by holding that in view of the specific clause contained in Article 12 viz., Clause 12.6, the applicant has to necessarily pay even the disputed amount and thereafter to make a claim as contemplated therein. 18. Clause 12.6 reads as follows: "12.6 In case of any discrepancy/dispute, regarding the invoices, the BUYER shall not return the bills or withhold or disallow part or full payment. After making the full payment the BUYER shall lodge a quantified claim with the SELLER within the period of 14 (Fourteen) days from the date of receipt of the related invoice. To the extent the claim is admitted by the SELLER, the SELLER shall issue a credit note in favour of the BUYER and adjust the same in the next invoice to be raised. The SELLER undertakes to consider the claim of the BUYER within a period of 30 (Thirty) days from the receipt of such claim, if found acceptable. Failure of the BUYER to put forward any claim within the time above specified shall be an absolute waiver of any claim." 19. The SELLER undertakes to consider the claim of the BUYER within a period of 30 (Thirty) days from the receipt of such claim, if found acceptable. Failure of the BUYER to put forward any claim within the time above specified shall be an absolute waiver of any claim." 19. Further, Clause 15.11 of the Agreement is also relevant to be quoted which reads as follows: "15.11 No payments due to the SELLER shall be withheld on account of such legal proceedings." 20. The very same clauses 12.6 and 15.11 was considered by this court in M/s.Soundararaja Mills Limited's case reported in the matter between the other private parties and the very same respondent under the very same Section 9 application. Those applications were filed seeking for injunction disconnecting the gas supply and for injunction from invoking the letter of credit. After considering various clauses, more particularly clauses 12.6 and 15.11 which are one and the same in both these cases, this court held at paragraph Nos.11 to 14 as follows: "11. Perusal of Clause 5.2 would show that the GAIL namely the respondent herein is not under obligation to pay MGO(TOP) of ONGC whenever, APM gas from ONGC is available in a network/field. Thus in turn GAIL will not raise invoices for MGO(TOP) quantum on its buyers. However, where GAIL is obliged to pay MGO(TOP) to ONGC, the same shall be recovered from the buyers of the respondent on pro rata basis, subject to maximum of MGO(TOP) liability. Therefore, this clause 5.2 makes it clear that the disputed amount claimed from the applicants is what the ONGC claims from the respondent. In this case, it is the contention of the applicants that till 2014 such invoices were not raised in respect of gas supplied but not utilised and that it is raised for the first time. It is also their contention that the agreement entered into between the parties is under protest in respect of the clause 5.2 as they were put to an disadvantageous position without having bargaining power. I am not able to agree to the said submission for the simple reason that the party who has entered into the agreement by signing the same without making any reference of protest or reservation in writing in the agreement, he cannot be heard to say at a later point of time that the same was signed under protest. I am not able to agree to the said submission for the simple reason that the party who has entered into the agreement by signing the same without making any reference of protest or reservation in writing in the agreement, he cannot be heard to say at a later point of time that the same was signed under protest. Likewise the contention that GAIL did not raise such invoices till 2014 and is raising on the first time also cannot be countenanced, since if such right is available to GAIL under the agreement it cannot be found fault with in acting in accordance with the terms of such agreement. 12. Article 12 of the contract deals with billing and payment. Under the said article, clause 12.6 specifically contemplates that the buyer shall not return the bills or withhold or disallow part or full payment in case of any discrepancy/dispute regarding the invoices. The said clause further contemplates that the buyers, after making the full payment, shall lodge a quantified claim with the seller within a period of 14 days from the date of receipt of the invoices in dispute. Therefore, when clause 12.6 in an unequivocal terms mandates the buyer to pay full payment in respect of the invoices raised even in the case of any discrepancy or dispute with regard to such invoices and thereafter, to make a claim with the seller, I do not think that the applicants are having any prima facie case before this Court to seek for the injunction against invoking the bank guarantees/letter of credits. In fact, the above said clause 12.6 is further strengthened under Clause 15.11 which contemplates that no payment due to seller shall be withheld on account of legal proceedings. However clause 15.10 mandates both parties that they shall continue to perform all of their respective obligations under the agreement without prejudice to the final determination, while any dispute under the said agreement is pending. What emerges from clause 15.10 is that even in case of any dispute with regard to the invoices raised by the respondent, the buyer shall pay the disputed amount and agitate the matter before the Arbitral proceedings while, the respondent is also mandated to continue the supply without prejudice to their rights to be determined in the Arbitral proceedings. What emerges from clause 15.10 is that even in case of any dispute with regard to the invoices raised by the respondent, the buyer shall pay the disputed amount and agitate the matter before the Arbitral proceedings while, the respondent is also mandated to continue the supply without prejudice to their rights to be determined in the Arbitral proceedings. Therefore clause 15.10 and clause 15.11 which deal with the obligation and counter obligations of the parties make the position very clear that the applicants have not made out a case much less a prima facie case for granting the interim order against the invoking of bank guarantees. 13. An attempt is made by the learned Senior Counsel appearing for the applicants to interpret Clause 15.11 to the effect that "payments due" referred to under the said clause does not mean and include payment under dispute and therefore the applicants are obliged to pay only the payments due where there is no dispute and they are not obliged to pay payments which are under dispute. I do not think that such an interpretation as sought for by the learned Senior Counsel is warranted or justified in these cases in view of the existence of a specific clause namely clause 12.6 dealing with payments even in respect of disputed invoices. I have already discussed what is contemplated under Clause 12.6 and its scope. Therefore, I find that the above contention raised by the learned Senior Counsel does not support the claim of the applicants even on a prima facie view. 14. It is well settled that as against invocation of bank guarantees the Court should show restraint in granting such interim orders unless fraud and irretrievable injury or injustice are pleaded and established. In these cases the applicants have not pleaded and made any allegation of fraud. Therefore, considering the fraud does not arise in these cases. What the Court now is to see as to whether irretrievable injury would be caused to the applicants or they will be put to irretrievable injustice. 21. Therefore, based on the above stated facts and circumstances and on consideration of various clauses contained in the agreement, this court is of the view that the applicant has not made out a case not even a prima facie one for grant of the present interim relief. 21. Therefore, based on the above stated facts and circumstances and on consideration of various clauses contained in the agreement, this court is of the view that the applicant has not made out a case not even a prima facie one for grant of the present interim relief. On the other hand, this court is of the view that the relief sought for is, apart from being pre mature, also not entertainable and granted in view of the presence of clauses 12.6 and 15.11 of the agreement. I find that there is no balance of convenience also in favour of the applicant. I also find that based on the above stated facts and circumstances, no irretrievable injury is established by the applicant. The injury as projected by the applicant in this case is only an apprehended injury and not an injury certain to happen. Therefore, the principles of irretrievable injury also cannot be applied in this case. 22. Though in the counter affidavit, the respondent has raised an objection with regard to the jurisdiction of this court to entertain this application, the learned counsel for the respondent has not made any submission on that issue. In any event, in view of the decision made by the Apex Court in Bharat Aluminium Company's case reported in 2012(9) SCC 552 , I am of the view that this court has jurisdiction to entertain this application, as admittedly the agreement was entered between the parties at Chennai and the substantial part of cause of action has arisen within its jurisdiction. Accordingly, this application is dismissed, however by granting liberty to the parties to raise all the points raised herein and agitate the matter before the Arbitral Tribunal, which will consider the same and decide on merits in accordance with law.