THE HIGH COURT OF SIKKIM : GANGTOK

(Civil Appellate Jurisdiction)

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DIVISION BENCH: THE HON’BLE MR. JUSTICE BISWANATH SOMADDER, CHIEF JUSTICE

THE HON’BLE MR. JUSTICE BHASKAR RAJ PRADHAN, JUDGE

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Arbitration Appeal No. 1 of 2020

1. Sikkim Power Development Corporation Ltd.,

Through its Managing Director,

31 A, National Highway,

Gangtok, Sikkim – 737101.

2. The State of Sikkim,

Through its Secretary,

Power Department,

Government of Sikkim,

Kazi Road,

Gangtok, Sikkim – 737101. ….. Appellants

versus

M/s Amalgamated Transpower (India) Ltd.,

Through its Managing Director,

Having its office at E-10/8,

Vasant Vihar,

New Delhi. ….. Respondent

Appeal under section 37 of the Arbitration & Conciliation Act, 1996

[Against the judgment dated 26.12.2019 passed by the Commercial Court, East

Sikkim, Gangtok, in Arbitration Case No. 05 of 2017]

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Appearance:

Mr. Jishnu Saha, Senior Advocate with Mr. Tarun Johri, Mr. Aarohi Bhalla,

Ms. Tamanna Chhetri, Mr. Tenzing Thinlay Lepcha, Mr. Vidhan Vyas,

Mr. Tanish Ganeriwala and Mr. Vishwajeet Tyagi, Advocates for the

appellants.

Mr. Prasanna Kumar Das, appearing in -person, as representative of the

respondent.

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and

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Arbitration Appeal No. 1 of 2021

Amalgamated Transpower (India) Ltd.,

Through its Chief Executive Officer

and Authorised Representative,

E-10/8, Vasant Vihar,

New Delhi 110057. ….. Appellant

versus

1. M/s Sikkim Power Development Corpo ration Ltd.,

Through its Managing Director,

31 A, National Highway,

Gangtok, Sikkim – 737101.

2. The State of Sikkim,

Through its Principal Chief Engineer-cum- Secretary,

Power Department,

Government of Sikkim,

Kazi Road,

Gangtok, Sikkim – 737101. ….. Respondents

Appeal under section 37 of the Arbitration & Conciliation Act, 1996

read with section 96 of the Code of Civil Procedure, 1908.

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Appearance:

Mr. Prasanna Kumar Das, appearing in -person, as representative of the

appellant.

Mr. Jishnu Saha, Senior Advocate with Mr. Tarun Johri, Mr. Aarohi Bhalla,

Ms. Tamanna Chhetri, Mr. Tenzing Thinlay Lepcha, Mr. Vidhan Vyas,

Mr. Tanish Ganeriwala and Mr. Vishwajeet Tyagi, Advocates for the

respondents.

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Date of hearing: 10.03.2023, 13.03.2023, 14.03.2023, 15.03.2023,

16.03.2023, 20.03.2023, 21.03.2023, 22.03.2023,

23.03.2023, 29.03.2023 & 19.04.2023

Date of judgment : 10.05.2023

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J U D G M E N T

Scope of the two appeals:

(1) Arbitration Appeal No. 1 of 2020 filed by Sikkim Power

Development Corporation L imited (SPDC) and the State of

Sikkim (SoS)

(2) Arbitration Appeal No. 1 of 2021 filed by Amalgamated

Transpower (India) L imited (ATPL)

1.(i) This judgment shall dispose of the two appeals as stated

above, both preferred under section 37 of the Arbitration and

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Conciliation Act, 1996 (Arbitration Act), against the judgment dated

26.12.2019 (impugned judgment) passed by the learned

Commercial Court, East Sikkim, at Gangtok (the Commercial Court)

in Arbitration Case No. 05 of 2017, preferred under section 34 of the

Arbitration Act by Sikkim Power Development Corporation Ltd.

(SPDC) and the State of Sikkim (SoS) – the appellants in Arbitration

Appeal No. 1 of 2020.

1.(ii) On 30.09.2017, the Sole Arbitrator had passed the

Award (the Award) on all the 35 issues framed by it. The Sole

Arbitrator granted all the prayers, except prayer [H] in favour of

Amalgamated Transpower (India) Limited (ATPL) . The total amount

awarded against prayers [F], [G] & [I] is ₹4,40,55,44,212/- (Rupees

four hundred and forty crores, fifty-five lakhs, forty-four thousand,

two hundred and twelve only) along with prayers [A], [B] and [C]

and alternatively, if prayers [A], [B] and [C] are not discharged by

the respondents, an award of ₹10,95,22,00,945/- (Rupees one

thousand ninety-five crores, twenty-two lakhs, nine hundred and

forty-five only) as against prayers [D] & [G]. The Sole Arbitrator has

awarded the aforesaid sums along with interest thereon @15% till

the pronouncement of Award, i.e., 30.09.2017. The Sole Arbitrator

further awarded simple interest @18% per annum from the date of

award till the date of payment. The Sole Arbitrator further awarded

a sum of ₹41.07 lakhs towards costs along with interest @15% per

annum from the date of award till date of payment.

1.(iii) In Arbitration Appeal No.1 of 2020, SPDC and the SoS

have challenged the impugned judgment of the Commercial Court to

the extent it upheld the Award and prayed for setting it aside.

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1.(iv) Amalgamated Transpower (India) Limited (ATPL) — the

appellant in Arbitration Appeal No. 1 of 2021 — is also aggrieved by

the impugned judgment. ATPL has challenged the impugned

judgment to the extent it has set aside the findings of the Sole

Arbitrator with respect to issues no. 9, 20 and 11.

1.(v) Issue no.9 was whether ATPL, in the alternative to

prayers [A], [B] and [C] was entitled to an award of damages in its

favour for a sum of ₹418.50 crores.

1.(vi) Issue no.20 was whether prayer [D] could be

maintained without sufficient pleading.

1.(vii) Issue no.11 was whether ATPL was entitled to damages

for a sum of ₹49.66 crores, as claimed in prayer [F].

1.(viii) The Sole Arbitrator held that prayer [D] was a claim for

compensation for damages to be paid by SPDC and the SoS for non-

adherence to prayers [A], [B] and [C] and allowed the same to have

effect upon their failure to adhere to the said prayers. The Sole

Arbitrator also held issues nos.20 and 11 in favour of ATPL.

1.(ix) On 28.12.2017, SPDC and the SoS filed an application

under section 34 of the Arbitration Act against ATPL aggrieved by

the Award. ATPL didn‘t challenge the Award although it did not grant

prayer [H].

Genesis of the dispute

2.(i) On 22.12.1998, a tender was floated by SPDC inviting

bids for construction of Hydro Electric Power Projects (HEPs) on 100

percent debt financing basis. ATPL submitted its bid on 05.01.1999,

which was accepted. SPDC issued letter of intent on 11.03.1999 for

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setting up the HEPS of different capacities for a total cost of ₹275

crores on 100 percent debt financing basis.

2.(ii) An Agreement dated 18.04.1999 (the First Agreement)

was entered between SPDC, the SoS and ATPL, to initially develop

four HEPs (Rolep-I - proposed to be 9 MW capacity , Rolep-II -

proposed to be 12 MW capac ity, Ralong - proposed to be 16 MW

capacity and Chakungchu - proposed to be 24 MW capacity ) of

varying capacities through debt financing and implementation

schemes in the State of Sikkim as run of the river schemes. A

significant clause in the First Agreement, being clause 10, reads as

follows:-

―10. Any variation in this Agreement or to any of the Appendices

can be done subject to the parties duly signing any supplementary

Agreement to be referred as addendum to this Agreement .‖

2.(iii) On 03.07.1999, the SoS gave an unconditional and

irrevocable guarantee for repayment of the principal amount and

interest thereon and raised an amount of ₹50.01 crores as bond

amount against the guarantee.

2.(iv) On 22.01.2002, SPDC and the SoS moved a proposal

for allotment of the projects to ATPL on Build Own Operate and

Transfer (BOOT) basis for an initial period of 35 years to be renewed

on mutually agreed terms and conditions. ATPL was required to give

Bank Guarantee to take over the borrowings made by SPDC.

2.(v) On 21.12.2002, another agreement (the Second

Agreement) was executed which superseded the First Agreement.

This Agreement also contained a similar and significant clause, as

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stated in paragraph 2(ii) hereinabove. This clause, being clause 25,

reads as follows:-

―25. Any variation or amendment to this Agreement can be done

subject to the parties duly signing any Supplementary Agreement to

be referred as addendum to this Agreement.‖

2.(vi) Admittedly, simultaneously with the execution of the

Second Agreement, ownership of all the three (now revised) HEPs

(Rolep – 36 MW, Ralong – 40 MW and Chakungchu -50 MW) were

transferred to ATPL. On 19.02.2003, reconciliation of accounts in

terms of the Second Agreement took place. It reflects that the SoS

had paid interest of ₹21,37,77,543/- (Rupees twenty-one crores,

thirty-seven lakhs, seventy-seven thousand, five hundred and forty-

three only), on the bonds.

2.(vii) The reconciliation of accounts signed by the parties also

accepts the fact that expenditure incurred by SPDC as per the

Second Agreement was verified by the parties. It endorsed and

accepted that the reconciliation of accounts in terms of the Second

Agreement would be an addendum to it.

2.(viii) SPDC gave their confirmation of the expenditure

incurred by SPDC and the SoS towards the three HEPs on

02.09.2003 amounting to ₹85.35 crores as per details attached

therewith.

2.(ix) Admittedly and significantly, however, no Detailed

Project Reports (DPRs) were submitted by ATPL for any of the three

HEPs, namely, Rolep, Ralong and Chakungchu within a period of 6

(six) months, as per agreement entered into by and between the

parties. Subsequently, it transpires that ATPL submitted a single

DPR for Rolep HEP for 36 MW after which techno -economic

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clearance was granted by the SoS on 06.05.2003 with a clear

understanding that the proposed capacity could be modified based

on bankable final optimization study. Admittedly, the estimated

installed capacity was later enhanced to 60 MW. However, no fresh

DPR for the enhanced capacity of Rolep was ever submitted by ATPL

at any subsequent point of time. Nor was any DPR ever submitted

subsequently in respect of the two other HEPs, namely, Ralong HEP

and Chakungchu HEP. On the basis of the preliminary DPR of Rolep

HEP, as submitted by ATPL, the SoS granted lease of 10.796

hectares of land at the Rolep site vide lease deed dated 29.05.2004.

However, admittedly again, the lease rent of ₹10,000/- per annum

has not been paid by ATPL, till date.

2.(x) There were several review meetings held by the then

Chief Secretary from time to time. During the course of hearing of

this matter, our attention was drawn to the minutes of the meetings

held on 21.08.2003, 14.11.2003, 09.03.2004, 26.04.2004,

23.07.2004, and 15.10.2004. These meetings discus sed the

progress of the project and sought to clear the bottlenecks. None of

the minutes of the meetings records the intention of the parties to

amend the Second Agreement nor was the Second Agreement ever

amended in terms of clause 25. The minutes of the meeting held on

09.03.2004 and 15.10.2004 also records the presence of a third

party, namely, Larsen and Toubro Limited (L&T), who was never

made a party before the Sole Arbitrator at any point of time.

2.(xi) The record reveals that an attempt was made to work

out an addendum to amend and restate the Second Agreement .

Although correspondences were exchanged between the parties, no

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such addendum was ever signed by and between the parties in

terms of clause 25 of the Second Agreement.

2.(xii) On 22.06.2006, SoS issued a final notice to ATPL. The

notice stated that the delay and the mounting pressure from bond

holders had compelled the SoS to take certain decisions. ATPL was

thus required to redeem the bond liability of Rs.50.01 crores,

including interest, by 31.07.2006. The notice also sought response

from ATPL confirming the redemption to be communicated to the

Managing Director, SPDC, by 10.07.2006. The notice informed ATPL

that failure to redeem the bond liability would lead to termination of

the Second Agreement and all three HEPs awarded to ATPL would

stand withdrawn without any further notice, leaving the SoS free to

award the projects to interested dev elopers. The notice further

sought for refund of the excess payment drawn by ATPL against

raising of bonds and the advance drawn by ATPL towards

construction of roads for Rolep HEP. The notice also sought a written

confirmation from ATPL agreeing to the redemption of the bonds to

reach SPDC by 10.07.2006, to be followed by total redemption of

Rs.50.01 crores by 31.07.2006 to the bond holders. It would be an

assumed indicator of ATPL‘s seriousness in developing the projects.

2.(xiii) On 02.05.2008, the SoS wrote to ATPL terminating the

Second Agreement considering the failure of ATPL to abide by its

terms and conditions and the delay in the implementation of the

project. Finally, the dispute was referred to arbitration. The Hon‘ble

Supreme Court appointed the Sole Arbitrator on 05.12.2011.

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The proceedings before the Sole Arbitrator and the

Commercial Court

3. ATPL filed its statement of claims on 08.06.2012. On

09.09.2012, SPDC and SoS filed their statement of defence and

counter claim. ATPL filed its rejoinder on 24.11.2012. SPDC and the

SoS filed their replication on 08.06.2013 and ATPL its sur-rejoinder

on 24.08.2013. The Award was passed on 13. 09.2017. SPDC and

SoS, thereafter, filed an application under section 34 of the

Arbitration Act challenging the Award before the Commercial Court.

The Commercial Court passed the impugned judgment on

26.12.2019.

The Award

4.(i) The Sole Arbitrator granted all the prayers in favour of

ATPL, except prayer [H]. While granting prayer [A], the Sole

Arbitrator directed SPDC and the SoS to perform all its obligations

under the Second Agreement in a time bound manner. It further

directed SPDC and the SoS, as agreed in the meeting dated

15.10.2004, to provide land, required access roads and bridges for

the three HEPs within a specific time-frame. The Sole Arbitrator

awarded perpetual injunction against SPDC and the SoS and

directed them not to deal with the three HEPs contrary to the

Second Agreement in terms of prayer [B]. The Sole Arbitrator

awarded mandatory injunction in favour of ATPL directing SPDC and

the SoS to allow the three HEPs to be implemented by ATPL in terms

of prayer [C]. Having granted all the three prayers [A], [B] and [C]

in favour of ATPL, the Sole Arbitrator went on to award the

alternative prayer [D] on the condition that it shall have effect upon

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failure of the respondent to adhere to prayers [A], [B] and [C].

ATPL, however, had specifically prayed for grant of damages under

prayer [D] only if the Sole Arbitrator did not grant prayers [A], [B]

and [C].

4.(ii) The Sole Arbitrator while deciding issue no.2 found that

there was no provision under the Second Agreement permitting its

termination unilaterally by the SoS; that SPDC, which was a

separate legal entity, had not taken a decision to terminate the

Second Agreement; that SoS had not issued any show cause notice

before issuance of letter dated 02.05.2008, in violation of the rules

of natural justice; that the ground of delay by ATPL was not justified

as it was SPDC and SoS who had continuously de ferred the

performance of its obligation to provide land and access road

without which the construction work of the projects could not start;

that the letter dated 02.05.2008 was issued with mala fide intention

and ulterior motive.

4.(iii) While deciding issues nos. 3, 22 and 23, the Sole

Arbitrator held that the Second Agreement regarding submission of

bank guarantee by ATPL was modified by the minutes of the

meeting dated 09.03.2004 and 26.04.2004. Sole Arbitrator also held

that in the minutes of the meeting dated 15.10.2004, further major

changes took place in terms of the Second Agreement. It was held

that the parties to the joint meeting dated 09.03.2004, 26.04.2004

and 15.10.2004 decided to modify their respective obligations and

SPDC and the SoS had signed these minutes on their own free will.

The Sole Arbitrator found that SPDC and the SoS had the right to

modify the terms of the agreement under section 63 of the Indian

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Contract Act, 1872. The Sole Arbitrator held that ATPL was no

longer required to provide bank guarantee till SPDC and the SoS

provided entire land record for Rolep and Chakungchu project in

view of the agreement between the parties in the meeting held o n

09.03.2004 and 26.04.2004. It was further held that since the land

was not provided by SPDC and the SoS, the feasibility of submitting

any bank guarantee by ATPL did not arise and subsequently after

the decision of the parties in the meeting held on 15.10.2004, the

responsibility to repay the bond holder was taken over by the SoS

and consequently, the question of ATPL providing bank guarantee

did not arise.

4.(iv) While deciding issues nos. 4 and 28, the Sole Arbitrator

concluded that it was not necessary to decide whether the Second

Agreement was in the nature of BOO or BOOT arrangemen t. It also

held that the SoS had transferred the ownership of the three HEPs

to ATPL.

The impugned judgment rendered by the Commercial Court

5.(i) The opinion of the Sole Arbitrator that M/s Rolep Hydro

Electric Power Co. Ltd. and Velankani Renewable Energy Pvt. Ltd.

were not necessary parties was upheld by the Commercial Court.

5.(ii) The opinion of the Sole Arbitrator that neither the letter

dated 22.06.2006 nor the letter dated 02.05.2008 had the effect of

terminating the Second Agreement was also upheld.

5.(iii) The Commercial Court upheld the view of the Sole

Arbitrator that the minutes of meeting dated 09.03.2004,

26.04.2004 and 15.10.2004 modified the Second Agreement and

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they were in the nature of addendum and supplement al to the

Second Agreemen t. It was held that clause 25 of the Seco nd

Agreement did not disentitle the parties to amend it.

5.(iv) Contrary to the findings of the Sole Arbitrator, it was

held that the recital in the Second Agreement makes it clear tha t

the parties had in fact agreed to do the project on BOOT basis and

the terms of the Second Agreement was clear and unambiguous.

5.(v) The Commercial Court also upheld the view of the Sole

Arbitrator that SPDC and SoS had failed to perform their part of the

promise as per the minutes of the meeting dated 09.03.2004,

26.04.2004 and 15.10.2004 and relinquished their claim for bank

guarantee from ATPL; as such there was no question of breach on

the part of ATPL.

5.(vi) The Commercial Court upheld the grant of specific

performance in favour of ATPL by the Sole Arbitrator. However, it

was held that since ATPL had itself sought damages in the

alternative to specific performance, the Sole Arbitrator exceeded the

scope of its jurisdiction in awarding both damages as well as specific

performance of the Second Agreement. It was also held that the

Sole Arbitrator had committed patent illegality while doing so. It was

held that when a party claims specific performance or damages in

the alternative, it is always entitled to elect between the two

remedies.

5.(vii) The Commercial Court set aside the Sole Arbitrator‘s

finding on issues no. 9 and 20 while maintaining the findings on

issue no.6. The Award, to the extent it granted damages, was set

aside, being patently illegal and unjust.

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5.(viii) The Commercial Court also set aside the reasoning and

findings of the Sole Arbitrator on issue no.11, which awarded further

damages even for the expenses incurred in executing various works

by ATPL in performance of its obligation to develop the project prior

to the issuance of letter dated 02.05.2008 by the SoS as being

patently illegal and unjust. It was held that those expenses incurred

by ATPL were incurred in performance of its part of the Second

Agreement. Since SPDC and SoS are required to now perform their

part of the Second Agreement they could not be obliged to incur the

expenses which ATPL was required to incur under the Second

Agreement.

5.(ix) Accordingly, the Commercial Court partly allowed the

petition under section 34 of the Arbitration Act preferred by SPDC

and SoS.

The Second Agreement

6.(i) The Second Agreement signed between SPDC, the SoS

and ATPL on 21.12.2002, acknowledged that subsequent to the First

Agreement, parties performed various obligations and

responsibilities and that it was understood that the ownership of the

projects was to be transferred to ATPL, who would develop, own and

operate the projects on BOOT basis and not on debt financing and

implementation scheme as agreed earlier.

6.(ii) SPDC, the SoS and ATPL agreed that the Second

Agreement would supersede the First Agreement.

6.(iii) They also agreed that the project would consist of Rolep,

Ralong and Chakungchu with 36 MW, 40 MW and 50 MW ,

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respectively, as estimated installed capacity. They agreed that ATPL

shall operate these projects on BOOT basis for a period of 35 years

to be renewed for another 35 years on mutually agreed terms.

6.(iv) They agreed under clause 25 that any variation or

amendment to the Second Agreement could be done subject to the

parties duly signing any supplementary agreement, which was to be

referred as addendum to the Second Agreement . For convenience,

clause 25 is again reproduced hereinbelow:-

―25. Any variation or amendment to this Agreement can be done

subject to the parties duly signing any Supplementary Agreement to

be referred as addendum to this Agreement.‖

6.(v) They made it clear that the Second Agreement sets forth

the entire understanding between the parties relating to the subject

matter and superseded all other prior agreements an d

understanding.

6.(vi) ATPL clearly agreed to take over the responsibilities of

payment of bond amount to the extent of ₹50.01 crores; interest

already paid @ 13.75%; and interest @12.4 5% to be paid half

yearly after reconciliation of accounts. ATPL also agreed to furnish

bank guarantee for the said amounts within a period of 12 month s

of signing of the Second Agreement.

6.(vii) The Second Agreement recorded that ATPL had taken

over the responsibility of repayment of the bond and interest

thereon on the understanding that the ownership of the projects

was transferred to ATPL.

6.(viii) It was agreed that the balance amount of the money

raised (₹50.01 crores) lying with SPDC and the SoS was to be

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released to ATPL against equal amount of bank guarantee to be

submitted by ATPL.

6.(ix) SoS was required to provide land on lease of 99 years to

ATPL immediately upon identification of such land jointly by ATPL

and SoS. The annual lease rent was quantified at ₹10,000/- per

annum, till the projects were with ATPL.

6.(x) SPDC and the SoS, at their cost, were to provide access

roads to the major structures of the project as required by ATPL.

6.(xi) SPDC and the SoS were required to complete land

acquisition, transfer it to ATPL and also construct access roads to

major structures of the projects after confirmation by ATPL

regarding required roads and bridges.

6.(xii) ATPL was required to give their confirmation (details of

roads and bridges) within six months of signing of the agreement.

6.(xiii) In case SPDC and the SoS gave consent to ATPL to bear

the cost of roads and bridges and commit ted to complete them

within reasonable specified time to enable ATPL to complete the

projects on time, only then ATPL was required to submit the DPRs

for these projects within six months thereafter.

6.(xiv) ATPL was to obtain clearances and approvals from

various agencies and organisations of the Government of Sikkim

including clearances from the State Forest, Environment and

Pollution Control Boards, etc., which were to be facilitated by SPDC

and the SoS. Similarly, ATPL was also required to obtain clearances

and approvals from Government of India and other agencies o utside

Sikkim, and SPDC and SoS were to provide the necessary

assistance.

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6.(xv) ATPL was to provide the SoS 12% of total electricity

generated, after deduction of auxiliary consumption and

transformation losses free of cost for the first 15(fifteen) years from

the date of commencement of commercial production and thereafter

from the 16

th

year, 15% of the total electricity generated after

deduction of auxiliary consumption and transformation losses from

each of the projects or money equivalent thereof.

6.(xvi) ATPL was also required to give SoS from the year

following one year of commencement of commercial production , 2%

from their annual net profit of each of these projects, which could be

enhanced commensurate with higher power generation and

increased profit.

6.(xvii) Clause 24 of the Second Agreement is reproduced

hereinbelow:-

―24. The First Party and the Second Party shall have the right to

carry out the survey and investigation/explore/execute any river valley

schemes in the upstream as well as d ownstream of the projects,

except those permitted under this agreement, without detriment to the

Projects mentioned in this Agreement including their operation,

generation, etc. The Third Party shall not have any claim over

generation from any other projects existing and being envisaged in the

upstream/downstream of the three projects, except those permitted

under this Agreement. In case, construction of approach roads

including bridges to major structures of Ralong and/or Chakungchu

HEPs involve very long time and high cost; or get resistance from

Forest and Environment Department of the State/Central

Governments; and if their clearances take considerable time; or these

two projects, after detail geo-technical investigation, are found to be

techno-economically unviable to make the arrangements under this

Agreement viable the First Party and the Second party shall

immediately allot one or more projects of similar sizes downstream of

Ralong and Rolep Projects to be selected by t he Third Party, where

such road works will involve less time and cost, in favour of the Third

Party on the similar terms and conditions as mentioned in this

Agreement.‖

Submission of the parties

7. Mr. Jishnu Saha, learned Senior Advocate, representing

SPDC and the SoS, relying upon the provisions of sections 34 and

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37 of the Arbitration Act and the opinions expressed by the Hon‘ble

Supreme Court on those provisions from time to time submitted that

the learned Commercial Court had failed to appreciate that the

Award was vitiated on various other grounds besides those which

were upheld by the Commercial Court holding that it amounted to

the Sole Arbitrator committing patent illegality. He submitted that

the Sole Arbitrator went beyond the terms of the Second Agreement

and granted reliefs which were not even sought for by ATPL; that

the Award was in conflict with the public policy of India as it was in

contravention to the fundamental policy of Indian law and also in

conflict with the most basic notions of morality or justice; that the

Award was vitiated by patent illegality appearing in the face of the

Award. Mr. Saha pointed out that the Award reflects non-application

of judicial mind inasmuch as the Sole Arbitrator passed the Award

beyond what was even claimed by ATPL. It was argued that the Sole

Arbitrator had passed the Award in violation of sections 16, 21(1)

and (2) of the Specific Relief Act, 1963. He also submitted that in

respect of the three (3) HEPs, not a brick or a stone was laid by

ATPL and as such, the Award carrying a fantastic sum, will shock the

conscience of the Court.

8. Mr. P. K. Das, as representative of ATPL, sought to

defend the Award and challenge that part of the impugned judgment

rendered by the Commercial Court , which held that some parts of

the Award were patently illegal. He argued that in view of the

admission of SPDC and the SoS, in reply to the claim petition

regarding the relevant time for submission of DPRs , no issue was

framed by the Sole Arbitrator. It is the case of ATPL that there is no

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statutory provision to support the submission of SPDC and the SoS

that until DPRs were submitted by ATPL, their obligation to provide

land, access roads and bridges would not commence. The finding of

the Sole Arbitrator regarding issues no. 21, 30 and 31 remained

unassailed. He argued that the reason for not laying a single brick or

stone for any of the HEPs is attributable to the failures of SPDC and

the SoS and not ATPL. He argued that SPDC and the SoS had clearly

admitted in their appeal that the Second Agreement was not

determinable in response to the finding in the Award that their

counter claim was barred by limitation. He submitted that the

finding of the Sole Arbitrator on issues nos. 26 and 27 has been

upheld in the impugned judgment which has not been challenge d in

their appeal by SPDC and SoS. Various grounds taken in the appeal

preferred by SPDC and the SoS were neither taken before the Sole

Arbitrator nor before the Commercial Court. The terms of the

Second Agreement w ere modified by the minutes of the meeting

dated 09.03.2004, 26.04.2004 and 15.10.2004. The Award is not

patently illegal as the Sole Arbitrator had examined each of the

issues and rendered his findings on each of them, most of which

remains unassailed. The appeal of SPDC and the SoS is an

assortment of contradictory pleas which are liable to be rejected.

With regard to the grant of ₹265.10 crores by the Sole Arbitrator in

the claim of ATPL for damages of ₹120 crores only, Mr. Das

submitted that the Sole Arbitrator had considered the cost

escalation from the date of termination, i.e., 02.05.2008, till the

filing of the claim petition, i.e., 02.05.2012, on civil costs as per

CEA/CWC norms. It was further argued that the calculation of price

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escalation as provided by ATPL as annexure ‗A‘ to their replication

remain unassailed by SPDC and the SoS. Thus, SPDC and the SoS

were precluded from challenging it before this Court. With regard to

the Sole Arbitrator awarding more than what was claimed for, Mr.

Das submitted that even if the Award is considered as perverse on

that ground, the same did not go to the root of the matter and

therefore the entire Award could not be set aside.

The relevant provisions of the Arbitration & Conciliation Act,

1996

9. Sections 34 and 37 of the Arbitration Act, to the extent

relevant, are set out hereunder:-

―34. Application for setting aside arbitral award . — (1)

Recourse to a Court against an arbitral award may be made only

by an application for setting aside such award in accordance with

sub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the Court only if —

(a) the party making the application furnishes proof that—

…………………………… ……………………………………………………………………..

(iv) the arbitral award deals with a dispute not contemplated by

or not falling within the terms of the submission to arbitration, or

it contains decisions on matter beyond th e scope of the

submission to arbitration:

Provided that, if the decisions on matters submitted to

arbitration can be separated from those not so submitted, only

that part of the arbitral award which contains decisions on

matters not submitted to arbitration may be set aside; or

………………………… …………………………………………………………………………

(b) the Court finds that —

…………………………… ……………………………………………………………………..

(ii) the arbitral award is in conflict with the public policy of India.

[Explanation 1.- For the avoidance of any doubt, it is clarified

that an award is in conflict with the public policy of India, only if,

—

(i)The making of the award was induced or affected by fraud or

corruption or was in violation of section 75 or section 81; or

(ii)it is in contravention with the fundamental policy of Indian

law; or

(iii)it is in conflict with the most basic notions of morality or

justice.]

[Explanation 2. – For the avoidance of doubt, the test as to

whether there is a contravention with the fundamental policy of

Indian law shall not entail a review on the merits of the dispute.]

(2A) An arbitral award arising out of arbitrations other than

international commercial arbitrations, may also be set aside by

the Court, if the Court finds that the award is vitiated by patent

illegality appearing on the fact of the award:

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Provided that an award shall not be set aside merely on the

ground of an erroneous application of the law or buy

reappreciation of evidence.]

…………………………………………………………………………………… …………………

x x x

37. Appealable orders. - (1) An appeal shall lie from the

following orders (and from no others) to the Court authorized by

law to hear appeals from original decrees of the Court passing

the order, namely:-

………………………………………… ………………………………………… …………….

(c) setting aside or refusing to set aside an arbitral award under

section 34.

…………………………………………………………………………………… …………...‖

Law laid down by the Hon’ble Supreme Court

Renusagar Judgment

10.(i) The Hon‘ble Supreme Court in Renusagar Power Co. Ltd.

vs. General Electric Co.

1

, construed the term ―public policy‖ under

section 7(1)(b)(ii) of the Foreign Awards (Recognition and

Enforcement) Act, 1961, and held that an award contrary to (i) the

fundamental policy of Indian law; or (ii) the interests of India; or

(iii) justice or morality; would be set aside on the ground that it

would be contrary to the public policy of India.

Scope of Section 34 of the Arbitration & Conciliation Act, 1996

10.(ii) In Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.

2

,

the Hon‘ble Supreme Court construed the expre ssion, ―the public

policy of India‖ contained in section 34(2)(b)(ii) of the Arbitration

Act, 1996 and held that award could be set aside if it is contrary to:

(a) fundamental policy of Indian law; or (b) the interest of India; or

(c) justice or morality; or (d) in addition, if it is patently illegal. It

1

(1994) Supp (1) SCC 644

2

(2003) 5 SCC 705

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was also held that the illegality must go to the root of the matter

and if the illegality is of trivial nature it cannot be held that award is

against the public policy. Award could be set aside if it is so unfair

and unreasonable that it shocks the conscience of the Court. Such

award is opposed to public policy and is required to be adjudged

void.

10.(iii) The Hon‘ble Supreme Court in McDermott International

Inc. vs. Burn Standard Co. Ltd. & Others

3

held that the Arbitration Act

makes provision for the supervisory role of Courts for the review of

the arbitral award only to ensure fairness. Intervention of the Court

is envisaged in few circumstances only; like, in case of fraud or bias

by the arbitrators, violation of natural justice, etc. The Court cannot

correct errors of arbitrators. It can only quash the award leaving the

parties free to begin arbitration if it is desired. So, the scheme of the

provision aims at keeping the superv isory role of the Court at

minimum level and this can be justified as parties to the agreement

make a conscious decision to exclude the Court‘s jurisdiction by

opting for arbitration as they prefer the expediency and finality

offered by it. The Hon‘ble Supreme Court also examined judgments

of various High Courts and thereafter concluded that there can be

no doubt that given the law laid down by it, section 34 of the

Arbitration Act cannot be held to include within it a power to modify

an award. The jurisdiction of the Court and the scope of Section 34

of the Arbitration Act is thus sufficiently clear.

3

(2006) 11 SCC 181

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10.(iv) In Associate Builders vs. Delhi Development Authority

4

, the

Hon‘ble Supreme Court examined section 34 of the Arbitration Act

and the various judgments rendered and went on to explain the

various grounds available in interfering with arbitral awards.

Disregarding orders of Superior Courts in India as well as the

binding effect of the judgment of the Superior Court was considered

as being contrary to the fundamental policy of Indian law. It was

also held that equally important and fundamental to the policy of

Indian law is the principle that a Court and so also a quasi-judicial

authority must, while determining the rights and obligations of

parties before it, do so in accordance with the principles of natural

justice. Non-application of mind is a defect that is fatal to any

adjudication. A decision which is perverse or so irrational that no

reasonable person would have arrived at the same will not be

sustained in a Court of law. Judicial approach ensures that authority

acts bona fide and deals with the subject in a fair, reasonable and

objective manner and that its decision is not actuated by any

extraneous consideration. Judicial approach in that sense acts as a

check against flaws and faults and can render the decision of a

Court, tribunal or authority vulnerable to challenge. It was held that

the juristic principle of a judicial approach demands that a decision

be fair, reasonable and objective. On the obverse side, anything

arbitrary and whimsical would obviously not be a determination

which would either be fair, reasonable or objective. It was also held

that it was neither necessary nor proper to attempt an exhaustive

4

(2015) 3 SCC 49

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enumeration of what constitutes the fundamental policy of Indi an

law nor is it possible to place the expression in the straightjacket of

a definition. The Hon‘ble Supreme Court also explained the next

ground on which an award may be set aside, i.e., that it is contrary

to the interest of India and held that this ground is to evolve on a

case to case basis. The Hon‘ble Supreme Court held that the third

ground of public policy is, if an award is against justice or morality.

The fourth ground available according to the Hon‘ble Supreme Court

was patent illegality. It was held that contravention of substantive

law of India would result in the death knell of an arbitral award. It

was explained that such illegality must go to the root of the matter

and cannot be of trivial nature. A contravention of the Arbitration

Act itself would be regarded as patent illegality. Contravention of

section 28(3) of the Arbitration Act was also held to be the third

subhead of patent illegality. The Arbitral Tribunal is required to

decide in accordance with the terms of the contract and shall take

into account the usages of the trade applicable to the transaction. A

caveat, however, cautioned that if an arbitrator construes a term of

the contract in a reasonable manner, it will not mean that the award

can be set aside on this ground. Construction of the terms of the

contract is primarily for an arbitrator to decide unless the arbitrator

construes the contract in such a way that it could be said to be

something that no fair minded or reasonable person would do. It is

settled law that where a finding is based on no evidence, or an

Arbitral Tribunal takes into account something irrelevant to the

decision which it arrives at; or ignores vital evidence in arriving at

his decision, such decision would necessarily be perverse. The next

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ground on which an award may be set aside is that it is contrary to

the interest of India which concerns itself with India as a member of

the world community in its relation with foreign power. The third

ground of public policy is, if an award is against justice or morality.

An award can be said to be against justice only when it shocks the

conscience of the Court. It was also held patent illegality as a

principle contains three sub-heads, i.e., contravention of substantive

law of India, contravention of the Arbitration Act and contravention

of the terms of the contract.

10.(v) In Maharashtra State Electricity Distribution Co. Ltd. vs.

Datar Switch Gear Ltd. & Others

5

, the Hon‘ble Supreme Court had held

that a Court hearing a section 34 petition does not sit in appeal.

10.(vi) In Ssangyong Eng ineering & Construction Co. Ltd. vs.

National Highways Authority of India ( NHAI)

6

, the Hon‘ble Supreme

Court explained that under the guise of interfering with an award on

the ground that the arbitrator has not adopted a judicial approach,

the Courts cannot intervene on the merits of the award . It also

clarified that violation of principles of natural justice would continue

to be a ground for challenge of an award. The Hon‘ble Supreme

Court explained that the ground for interference on the basis that

the award is in conflict with justice and morality is to be understood

as a conflict with the ―most basic notions of morality or justice

and it is only such arbitral award that shock s the conscience

of the Court that can be set aside on this ground.‖ It was also

opined that patent illegality appearing on the face of the award

5

(2018) 3 SCC 133

6

(2019) 15 SCC 131

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which refers to such illegality as goes to the root of the matter but

which does not amount to mere erroneous application of the law

may also be a ground of challenge. Re-appreciation of evidence was

held not permissible under the ground of patent illegality appearing

on the face of the award. A mere contravention of the substantive

law of India, by itself, is no longer a ground available to set aside an

arbitral award. However, if the arbitrator gives no reason for an

award and contravenes section 31(3) of the Arbitration Act, that

would certainly amount to patent illegality on the face of the award.

It was held that the construction of the terms of a contract is

primarily for an arbitrator to decide, unless the arbitrator construes

the contract in a manner that no fair minded or reasonable person

would; in short, that the arbitrator‘s view is not even a possible view

to take. Also if the arbitrator wanders outside the contract and deals

with matters not allotted to him, he commits an error of jurisdiction.

This ground of challenge will now fall within the new ground added

under section 34(2-A). A finding based on no evidence at all or an

award which ignores vital evidence in arriving at his decision would

be perverse and liable to be set aside on the ground of patent

illegality. Additionally, a finding based on documents taken behind

the back of the parties by the arbitrator would also qualify as a

decision based on no evidence in as much as such decision is not

based on evidence led by the parties, and therefore, would also

have to be characterised as perverse.

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10.(vii) The Hon‘ble Supreme Court in MMTC Ltd. vs. Vedanta Ltd.

7

held that a section 34 proceedings does not contain any challenge

on the merits of the award.

10.(viii) In PSA Sical Terminals Pvt. Ltd. Vs. Board of Trustees of V.O.

Chidambranar Port Trust Tuticorin and Others

8

, the Hon‘ble Supreme

Court held that it is more than settled legal position that in an

application under section 34, the Court is not expected to act as an

Appellate Court and re-appreciate the evidence. The scope of

interference will be limited to grounds provided under section 34 of

the Arbitration Act. The interference would be so warranted when

the award is in violation of ―public policy of India‖, which has been

held to mean, ―the fundamental policy of Indian law‖. A judicial

intervention on account of interfering on the merits of the award

would not be permissible. However, the principles of natural justice

as contained in section 18 and 34(2)(a)(iii) of the Arbitration Act

would continue to be the ground s of challenge of an award. The

ground for interference on the basis that the award is in conflict with

justice or morality is now to be understood as a conflict with the

―most basic notions of morality or justice ‖. It is only such

arbitral award that shocks the conscience of the Court that can be

set aside on the said ground. An award would be set aside on the

ground of patent illegality appearing on the face of the award and as

such, which goes to the roots of the matter. However, an illegality

with regard to a mere erroneous application of law would not be a

ground for interference. Equally, re-appreciation of evidence would

7

(2019) 4 SCC 163

8

2021 SCC Online SC 508

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not be permissible on the ground of patent illegality appearing on

the face of the award. A decision which is perverse, though, would

not be a ground for challenge under ―public policy of India‖, would

certainly amount to a patent illegality appearing on the face of the

award. However, a finding based on no evidence at all or an award

which ignores vital evidence in arriving at its decision would be

perverse and liable to be set aside on the ground of patent illegality.

It was also held that to understand the test of perversity it would be

relevant to refer to paragraphs 31 and 32 from the judgment in

Associate Builders (supra).

10.(ix) In State of Chhattisgarh & Another vs. Sal Udyog Private

Limited

9

, the Hon‘ble Supreme Court explained what constitutes

patent illegality and held that when the arbitrator fails to decide

matters in accordance with the terms of contract g overning the

parties, it would attract patent illegality thereon.

10.(x) In Indian Oil Corporation Ltd. vs. Shree Ganesh Petroleum

Rajgurunagar

10

and Delhi Airport Metro Express Private Limited vs. Delhi

Metro Rail Corporation Limited

11

, the Hon‘ble Supreme Court

reiterated the restricted grounds on which only an award may be

interfered with and set aside.

Scope of section 37 of the Arbitration & Conciliatio n Act, 1996

11.(i) We shall now examine the jurisdiction and scope of

section 37 of the Arbitration Act. In Punjab State Civil Supplies

Corporation Ltd. and Another vs. Ramesh Kumar and Company and

9

(2022) 2 SCC 275

10

(2022) 4 SCC 463

11

(2022) 1 SCC 131

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Others

12

, the Hon‘ble Supreme Court held that the jurisdiction in a

first appeal arising out of a decree in a civil suit is distinct from the

jurisdiction of the High Court under section 37 of the Arbitration Act

arising from the disposal of a petition challenging an arbitral award

under section 34. It was held that the High Court was required to

determine as to whether the District Judge had acted contrary to the

provisions of section 34 of the Arbitration Act in rejecting the

challenge to the arbitral award.

11.(ii) In Haryana Tourism Ltd. vs. Kandhari Beverages Ltd.

13

, the

Hon‘ble Supreme Court held that the award can be set aside under

section 34/37 of the Arbitration Act, if the award is found to be

contrary to (a) fundamental policy of Indian law; or (b) the interest

of India; or (c) justice or morality; or (d) if it is patently illegal. It

also held that the High Court while deciding an appeal under section

37 cannot enter into the merits of the claim.

11.(iii) In Dr. A. Parthasarathy and Others vs. E. Springs Avenues

Pvt. Ltd. and others

14

, the Hon‘ble Supreme Court reiterated that

under section 37 of the Arbitration Act, the Court cannot remand the

matter to arbitrator for fresh decision unless it is consented by both

the parties following the law laid down in Kinnari Mullick vs.

Ghanshyam Das Dam ani

15

and I-Pay Clearing Services Pvt. Ltd. vs. ICICI

Bank Ltd.

16

. It held that only two options are available to the Court

considering the appeal under section 37 of the Arbitration Act. The

High Court may either relegate the parties for fresh arbitration or to

12

2021 SCC OnLine SC 1056

13

(2022) 3 SCC 237

14

(2022) SCC OnLine SC 719

15

(2018) 11 SCC 328

16

(2022) SCC OnLine SC 4

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consider the appeal on merits on the basis of the material available

on record within the scope and ambit of the jurisdiction under

section 37 of the Arbitration Act.

Consideration

12. ATPL had, in their claim petition, sought for the following

reliefs:-

“A] Pass an Award of Specific Performance in favour of the

Claimant Company and against the Opposite Parties thereby

enforcing the Terms of the Agreement dated 21.12.2002 and

thereby directing the Opposite parties to perform all their

obligations under the said Agreement in a time bound manner;

and

B] Pass an Award of Perpetual Injunction in favour of the

Claimant Company and against the Opposite Parties thereby

restraining the Opposite parties from dealing with the 3 Hydro

Electric Projects contrary to Agreement dated 21.12.2002; and

C] Pass an Award of Mandatory Injunction in favour of the

Claimant Company and against the Opposite parties thereby

directing the Opposite parties to implement the 3 Hydro Electric

Projects in terms of the Agreement dated 21.12.2002; or

D] In the alternative to prayer [A], [B] and [C], pass an Award of

Damages in favour of the Claimant Company and against the

Opposite Parties for a sum of ₹418.50 Crores; and

E] Pass an Award of Declaration in favour of the Claimant

Company and against the Opposite Parties declaring that the

letter of termination dated 02.05.2008 is illegal, malafide and

void and has no legal effect; and

F] Pass an Award of Damages in favour of the Claimant Company

and against the Opposite Parties for a sum of ₹496,689,279/-

(Rupees Forty Nine Crores Sixty Six Lakhs Eighty Nine Thousand

Two Hundred and Seventy Nine only) in terms of Paragraph 76 of

the Claim Petition; and

G] Pass an Award of Damages in favour of the Claimant

Company and against the Opposite Parties for a sum of

₹471,353,405/- (Rupees Forty Seven Crores Thirteen Lakhs Fifty

Three Thousand Four Hundred and Five only) in terms of

Paragraph 77 of the Claim Petition; and

H] Pass an Award of Damages in favour of the Claimant

Company and against the Opposite Parties for a sum of

₹1,080,000,000/- (Rupees One Hundred and Eight Crores) in

terms of Paragraph 78 of the Claim Petition; and

I] Award of Damages in favou r of the Claimant Company and

against the Opposite Parties for a sum of ₹1,200,000,000/-

(Rupees One Hundred and Twenty Crores) in terms of paragraph

79 of the Claim Petition; and

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J] Pass an Award of interest in favour of the Claimant Company

and against the Opposite Parties from the date of breach at the

rate of 18 per cent per annum; and

K] Pass an Award of cost of the instant arbitral proceedings in

favour of the claimant company and against the opposite parties;

and

L] Pass such other and further Award(s)/order(s) in favour of the

claimant company and against the opposite parties as this

Hon’ble Tribunal may deem fit and proper in the facts and

circumstances of the case.‖

13. The award of a fantastic sum as damages by the Sole

Arbitrator has caught our attention. That apart and in any event, the

conscience of this Court has been rudely shaken upon going through

the entire facts and circumstances of the instant case. Admittedly,

although the Second Agreement was signed in the year 2002 , till

date, not a single brick or stone has been laid by ATPL for any of the

three HEPs. It is ATPL‘s case that because of the defaults of SPDC

and the SoS, they had not been able to do so. A cursory glance of

the prayers quoted above reflects, however, that only prayer [F] for

damages for a sum of ₹496,689,279/- (Rupees forty-nine crores,

sixty-six lakhs, eighty-nine thousand, two hundred and seventy-nine

only), was the claim for actual expenditure. The claim of ATPL,

however, was that they had incurred total expenditu re of

₹220,278,098/- (Rupees twenty-two crores, two lakhs, seventy-

eight thousand and ninety-eight only), for field investigation and

survey, preparation of DPR, environmental studies, geo-technical

and geo-physical investigation, construction of temporary

structures, drilling on the river, gauge and discharge system and

cost of establishment, cost of site establishment and cost of

consultancy. This will appear from ATPL‘s claim petition itself.

Evidently, ATPL‘s claim as actual expenditure was only for

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preliminary works. As against the actual expenditure, admittedly

incurred by ATPL, t he Sole Arbitrator has awarded

₹4,40,55,44,212/- (Rupees four hundred and forty crores, fifty-five

lakhs, forty-four thousand, two hundred and twelve only), as award

of claim in prayer [F], [G] and [I] along with interest thereon and

₹10,95,22,00,945/- (Rupees one thousand ninety -five crores,

twenty-two lakhs, nine hundred and forty -five only), in the

alternative, if award [A], [B] and [C] are not discharged by SPDCL

and the SoS in favour of ATPL. Admittedly and significantly, all this

in the absence of any DPRs, save and except one DPR for the Rolep

HEP and that too, at the initial stage and limited to 36 MW.

Prayer [D]

14. The Commercial Court has held that the Sole Arbitrator

has committed patent illegality by awarding damages in terms of

prayer [D] of Rs.418.50 crores when ATPL itse lf has sought for it

only in the event the Sole Arbitrator did not award prayers [A],

[B] and [C] in his favour. Prayer [A] was for specific performance of

the Second Agreement. P rayer [B] was for award for perpetual

injunction restraining SPDC and the SoS from dealing with the three

HEPs contrary to the Second Agreement. Prayer [C] was for award

of mandatory injunction directing SPDC and the SoS to implement

the three HEPs in terms of the Second Agreement. The Sole

Arbitrator granted all the three prayers [A], [B] and [C] and

thereafter also decided to examine prayer [D] and granted it against

SPDC and the SoS, in case they failed to adhere to prayers [A], [B]

and [C]. In Associate Builders (supra), the Hon‘ble Supreme Court

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has held that an award can be said to be against justice only when it

shocks the conscience of the Court. The Hon‘ble Supreme Court

illustrated it by giving an example of a claimant being content with

restricting his claim to a particular amount in a statement of claim

before the arbitrator and at no point seeking anything more. The

arbitral award, however, awarded him much more than his claim

without any acceptable reason or justification. In the present case

as well, although the claim was precisely for grant of prayers [A],

[B] and [C] and if the Sole Arbitrator did not grant those prayers,

ATPL had sought for damages as claimed in prayer [D] as an

alternative, the Sole Arbitrator nevertheless went beyond the scope

of the prayers made by ATPL and granted prayer [D] without any

acceptable reason or justification even after granting prayers [A],

[B] and [C].

15. This part of the Award is also against section 21 of the

Specific Relief Act, 1963. When the Sole Arbitrator awarded specific

performance in terms of prayer [A], compensation could be granted

only on a finding that it was not sufficient to satisfy the justice of

the case. There was no such finding recorded by the Sole Arbitrator.

Further, the Sole Arbitrator could not have awarded compensation

unless ATPL had claimed such compens ation in its claim petition.

When, therefore, ATPL had sought for damages in terms of prayer

[D] as an alternative to non-grant of prayers [A], [B] and [C], the

Sole Arbitrator was not authorised or competent to even determine

the compensation sought for in prayer [D], leave alone grant the

same in the manner he did.

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16. Further, section 36 of the Arbitration Act provides for

enforcement of arbitral award in accordance with the provisions of

the Code of Civil Procedure, 1908, as if it were a decree of a Court.

When, thus, the Sole Arbitrator granted prayer [A] for specific

performance of Second Agreement — obviously, on the conclusion

that it could have been specifically performed — there was no need

for the Sole Arbitrator to ignore section 36 of the Arbitration Act.

The presumption that at some future stage, SPDC and S oS would

not be able to specifically perform and based on such presumption,

proceeding not only to determine the compensation payable on such

failure — but even going ahead to grant it — was grossly and

patently erroneous on part of the Sole Arbitrator.

17. The sole ground of determining prayer [D] that SPDC

and the SoS may not, in the future, specifically perform the

contract, therefore, is not an acceptable reason or justification. It is

held that the award of damages in terms of prayer [D] by the Sole

Arbitrator would squarely fall as one which is contrary to justice and

which shocks the conscience of this Court. The conclusion of the

Commercial Court setting the Award in terms of prayer [D] aside is

upheld.

Prayer [I]

18. Prayer [I] was a claim for damages for a sum of ₹120

crores for loss suffered towards cost escalation in the cost of three

HEPs with effect from 02.05.2008. The basis of this claim was that if

ATPL had to complete the project in accordance with the Second

Agreement, it would have been completed by 02.05.2008. According

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to ATPL, the cost of civil construction of the project was ₹4 crores

per MW which had escalated by 6% per annum from 02.05.2008 till

the date of construction. ATPL claimed that as on the date of the

claim, the total cost escalation caused due to failure of SPDC and

the SoS was ₹120 crores for 126 MW of the three HEPs. The Sole

Arbitrator granted ₹265.10 crores to ATPL for cost escalation

instead. The Sole Arbitrator completely ignored or lost complete

sight of the crucial fact that ATPL had not even laid a single brick or

stone for any of the projects or submitted the fundamental

requirement of DPRs for Chakungchu and Ralong HEPs till date for

the project to see even the light of day. By the same reasoning, as

held above, the grant of an award of damages of the sum of

₹265.10 crores, when ATPIL had sought for a specific sum of ₹120

crores only — in prayer [I] — as their claim for cost escalation,

necessarily requires to be set aside, being against the most basic

notions of justice and which shocks the conscience of the Court.

Prayer [A] – on the issue of specific performance

19. Prayer [A] sought specific performance of the Second

Agreement directing SPDC and the SoS to perform their obligations

under it. This prayer was not amended by ATPL. The Sole Arbitrator

framed issue no.6 to the effect whether ATPL is entitled to an award

of specific performance in its favour for enforcement of the Second

Agreement. Thus, it is certain that ATPL had not sought for specific

performance of those minutes of the meetings. The Sole Arbitrator

had held that ATPL sought direction upon SPDC and the SoS to

perform their obligations under the Second Agreement and what

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was decided on 15.10.2004. The Sole Arbitrator infers this from

paragraph 82 of the claim petition. Contrarily, in paragraph 82 of

the claim petition, ATPL has not sought so. The Sole Arbitrator,

therefore, clearly went beyond the pleadings and the prayer of ATPL

in order to hold as above.

On minutes of the meeting held on 15.10.2004

20. While answering issue no.6, the Sole Arbitrator has also

referred to issue no.3. Issue no.3 framed by the Sole Arbitrator was

whether the terms of the Second Agreement stood modified , as

pleaded by ATPL. The Sole Arbitrator refers to the contention of

ATPL with regard to issues no. 3, 22 and 23 in paragraphs 276 to

278 of the Award. In paragraph 278, the Sole Arbitrator records that

―.....thereafter another joint meeting was held on 15.10.2004 which

resulted in clear modification of the agreement dated 21.12.2002.‖

Besides that sentence, the Sole Arbitrator has not set out any

contention of ATPL that the Second Agreement stood modified by

subsequent minutes of the meetings between the parties.

21. Issues are framed based on the pleadings of the parties.

The claim petition does not assert that the Second Agreement stood

modified by minutes of any meetings held between the parties. Even

if the Sole Arbitrator was of the opinion that ATPL had, in fact,

pleaded that the minutes of the meeting dated 15.10.2004 had

modified the Second Agreement, it was clearly contrary to the

record of the said minutes. The minutes of the meeting dated

15.10.2004 was entered between the SoS, ATPL and Larsen &

Toubro (L&T) and not between the parties to the Second

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Agreement. On a cursory glance of the minutes of the meeting, it is

clear that L&T had reconfirmed their interest in developing the three

HEPs and that their consortium would be the single largest

shareholder in the Special Purpose Vehicle (SPV) in which ATPL

would also be a shareholder. L&T also wanted the confirmation by

the SoS that the projects had been allotted to ATPL on competitive

bidding and they had no objection in joining the SPV as the single

largest shareholder for implementation of the projects. L&T also

informed that the SPV would develop Rolep followed by Chakungchu

and Ralong HEPs. The said minutes also record that if the SoS fulfil

their commitments on the five points therein, SPV agreed to release

₹50.01 crores by February 2007 which would be utilised by SoS

towards repayment of the principle bond amount and the balance

principle amount lying in the bank along with ₹5 crores advanced to

ATPL (who, in turn, have advanced ₹1.85 crores to L&T) shall be

utilised for servicing the interest. In order to implement the project

on time, the SoS committed to provide all infrastructure and State

level clearances as detailed therein. Further, the minutes of the

meeting dated 15.10.2004 clearly records that it wo uld be

formalised by a detailed agreement between the SoS, SPDC, ATPL

and L&T, which was never done. The claim petition asserts an

agreement entered between ATPL and L&T. It is thus clear that the

minutes recorded the broad understanding if L&T came forwar d and

took over the projects from ATPL by forming an SPV with them as

the single largest party and ATPL as a shareholder only. Admittedly,

this did not happen. Unfortunately, the Sole Arbitrator not only

completely ignored this crucial fact and sought to i mpose the

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obligation under the minutes of 15.10.2004 on SPDC and the SoS in

favour of ATPL — in a manner which is in gross ignorance of the

record before him — he also lost sight of the fact that L&T was

never made a party before the Arbitral Tribunal by ATPL at any point

of time. The subsequent minutes also do not dwell on this crucial

aspect.

On minutes of the meeting held on 09.03.2004

22. The minutes of the meeting dated 09.03.2004 also

records clearly that it was chaired by the then Chief Secretary for

review of progress of the three HEPs. It also records that the

presence of L&T and ATPL was required to forward copy of

specification issued by them to L&T to SPDC . Again, certain steps

contemplated to be taken by the parties in the review meeting held

by the then Chief Secretary in the presence of L&T which ultimately

did not take over the project could not have firstly modified the

Second Agreement , as held by the Sole Arbitrator and the

Commercial Court and secondly, could not have bound SPDCL and

the SoS, especially in the absence of L&T as a party to the Arbitral

proceeding.

On minutes of the meeting held on 26.4.2004

23. The minutes of the meetings held on 26.04.2004 also

reveal that it was held by the then Chief Secretary to take stock of

the progress of the three HEPs , clear bottlenecks and never

intended to modify the Second Agreement.

24. Under section 63 of the Indian Contract Act, 1872, there

must be a clear intention to relinquish a right that is fully known to a

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party, as waiver is an intentional relinquishment of a known right.

The minutes of the meetings referred to, does not reflect such clear

intention. In view of the specific clause 25 of the Second

Agreement, we are also of the considered view that the minutes of

the above meetings could not have modified the Second Agreement

as held by the Sole Arbitrator and the Commercial Court, ignoring

what was clearly written in the said minutes of the meetings, and

reading only those paragraphs which would give an impression that

SPDC and the SoS had agreed to modify the Second Agreement.

25. The Award of the Sole Arbitrator granting specific

performance of the Second Agreement , which was held modified by

the minutes of the meeting dated 15.10.2004, is beyond prayer [A]

of ATPL‘s claim petition and thus, wholly contrary to justice and

which shocks the conscience of this Court. The finding of the Sole

Arbitrator on this aspect is also against the terms of the Second

Agreement, which the Sole Arbitrator directed specific performance

of. The Sole Arbitrator has clearly committed an error of jurisdiction

wandering outside the scope and purview of the Second Agreement.

26. Further, the Second Agreement was in terms of Article

166 and 299 of the Constitution of India and expressed to be made

by the Governor of the State of Sikkim. Article 299 specifically

provides that contracts made in exercise of executive power of the

State shall be expressed to be made by the Governor or other

specified authority and shall be executed on behalf of the Governor

by such persons and in such manner as he may direct or authorise.

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In Chatturbhuj Vithaldas Jasani vs. Moreshwar Parashram and others

17

,

the Hon‘ble Supreme Court held that Article 299 was not inserted for

the sake of mere form and the provision was there t o safeguard

against unauthorised contracts. It was also held that if, in fact, a

contract is unauthorised or in excess of authority, the Government

should be safeguarded. The language of Article 299 therefore

suggests that any variation in terms of the contract made under it

should also be made in accordance with the same procedure as the

original contract. The minutes of the meetings referred to above

does not comply with the provisions of Article 299 of the

Constitution of India as well apart from the crucial fact that it is not

even in accordance with the specific clause, being clause 25 of the

Second Agreement.

27. While granting specific performance, the Sole Arbitrator

directed SPDC and the SoS to make over the required land, access

roads and bridges for Rolep, Chakungchu and Ralong HEPs within a

specified time-frame in terms of the Second Agreement , as stood

modified by the minutes of meeting dated 15.10.2004. It does not,

however, spell out what were the required lands, access roads and

bridges to be provided by SPDC and the SoS. More importantly, the

Second Agreement contains various reciprocal obligations between

the parties. The Sole Arbitrator has not directed fulfilling of any of

the reciprocal obligations of ATPL except for directing it to make

payments of certain amounts for getting land and access roads for

17

A.I.R. 1954 S.C. 263

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bridges for Rolep HEP, land and access roads for bridges for

Chakungchu HEP and land and access roads for Ralong HEP.

28. The Second Agreement required each of the party to

perform certain obligations. As admitted by ATPL in the claim

petition itself, the ownership of the three HEPs was transferred to

ATPL, which was stipulated under clause one (1). The first clause

also stipulated that ATPL was to develop, own, operate these

projects on BOOT basis. However, admittedly, none of the projects

have been developed with the laying of even one brick or a stone,

leave alone being operated by ATPL. By clause two (2), as seen

above, ATPL agreed to take over the responsibility of payment of

bond amount to the extent of ₹50.01 crores; interest at the rate of

12.45%, payable half yearly; and interest already paid at a higher

rate (13.75%) after reconciliation of account which was to be

completed within 60 days of signing of the Second Agreement.

Admittedly, reconciliation of account was completed on 19.02.2002,

within the period of 60 days of signing of the Second Agreement.

Thus, ATPL was bound to take over the responsibility of payment of

bond amount and interest thereon as aforesaid after reconciliation of

account on 19.02.2002. ATPL was to also furnish necessary bank

guarantee from a Nationalised Bank for ₹50.01 crores as well as

guarantees for payment of interest within a period of 12 months

from signing of the Second Agreement. However, admittedly, ATPL

has not done so, till date.

29. The Second Agreement clearly records that SPDC and

the SoS had under the First Agreement borrowed funds of the said

amount of ₹50.01 crores through bonds to finance the

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implementation of the three HEPs, which was required to be repaid.

The Sole Arbitrator, however, held issues nos.3, 22 and 23 in favour

of ATPL and thereby further held that the Second Agreement had

been modified in the meeting of the parties dated 09.03.2004,

26.04.2004 and 15.10.2004; that after the meeting of the parties

dated 15.10.2004, ATPL was no longer responsible to repay the

bond holder; and that SPDC and the SoS had relinquished their

claim for bank guarantee.

30. We have already concluded that the minutes of the

meetings could not have either modified or amended the Second

Agreement for four clear reasons. Firstly, clause 25 of the Second

Agreement clearly envisaged a ―supplementary agreement ‖ to be

termed as an ―addendum‖ signed by the parties for any variation

or amendment thereof, which was never done. Thus, there was a

clear bar of doing it in any other manner other than what had been

specifically agreed upon by and between the parties under clause 25

of the Second Agreement. It would have been a different scenario

had clause 25 specifically allowed the parties to modify and/or vary

and/or amend the Second Agreement by means of holding meetings

and recording in its minutes of any decision to modify and/or vary

and/or amend the Second Agreement. Secondly, the minutes of the

meeting held on 15.04.2004 were on the proposal of L&T coming

into the picture and taking over the projects, which did not happen.

Consequently, SPDC and the SoS cannot be held bound by the

minutes of the meeting of 15.04.2004 without L&T taking over the

projects. Similarly, as stated earlier, L&T was never made a party.

Thirdly, the minutes of the other meetings were only for the purpose

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of the then Chief Secretary taking stock of the projects and

attempting to clear the bottlenecks and not for the purpose of

amending the Second Agreement. Fourthly, Article 299 of the

Constitution of India prohibits the amendment of a Governmen t

contract like the Second Agreement , without its compliance.

Additionally, a holistic reading of the Second Agreement makes it

apparent that SPDC and the SoS had clearly transferred their

liability under the First Agreement, having borrowed ₹50.01 crores,

to ATPL and that ATPL had agreed to take it over. This was the most

essential condition of the Second Agreement. However, the Sole

Arbitrator, as well as the Commercial Court, completely ignored the

record of the case which was most material and held that the

minutes of the meeting dated 15.10.2004 with L&T had modified the

Second Agreement and that SPDC and the SoS had abandoned their

right under the Second Agreement. Although, we would like to

exercise caution and restraint, we cannot ignore the fact that the

findings of the Sole Arbitrator borders towards perversity.

31. For the above reasons, it is also held that the finding of

the Sole Arbitrator that ATPL was no longer required to pay the

bond amount or give the bank guarantee in terms of the Second

Agreement is patently illegal on the face of the Award and liable to

be set aside. Additionally, it is also held that the Sole Arbitrator has

construed the contract in a manner that no fair minded or

reasonable person would and that his view is not even a possible

view to take, even remotely.

32. At this juncture, it would be important to examine the

finding of the Sole Arbitrator that SPDC and the SoS had failed to

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perform their part of the Second Agreement by providing ATPL with

lands and access roads and bridges.

33. The Second Agreement, envisaged ATPL doing the

preliminary survey, making the DPRs and identifying specific

locations for establishing the major structures of the projects,

requiring and confirming the access roads to the m ajor structures

from SPDC and the SoS. SPDC and the SoS were then to provide

access roads as required and confirmed by ATPL at their cost.

Admittedly, land in Rolep was provided on lease to ATPL when ATPL

submitted their preliminary and the only DPR. Admittedly, ATPL

never submitted any DPR either for Chakungchu or Ralong HEPs.

Without the DPRs — being an essential part for the purpose of

giving shape to the HEPs under the agreement — there has been no

progress at all.

34. Admittedly, ATPL has submitted only one DPR, i.e., for

36 MW Rolep HEP. Quite evidently for development of the three

HEPs, as envisaged in the Second Agreement , to be built, owned,

operated and subsequently transferred to SPDC and the SoS by

ATPL, it was important for ATPL to have prepared and submitted

DPRs to provide for a proper road map for all the projects‘

successful execution. As ATPL was to build, own and operate it,

quite obviously, as envisaged in the Second Agreement, ATPL was to

provide for details of roads and bridges and require it from SPDC

and the SoS. ATPL was also required to submit the DPRs and in case

SPDC and the SoS gave their consent to bear the cost of roads and

bridges and commit to complete these within reasonable specified

time to enable ATPL to complete the proje cts on time, ATPL was

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then required to submit the DPRs of these projects within six

months thereafter. SPDC gave the confirmation of the expenditure

incurred by SPDC and the SoS in terms of clause 13 of the Second

Agreement, towards the three HEPs on 02.09.2003. Thus, ATPL was

contractually bound to submit the DPRs for the three HEPs within six

months from 02.09.2003. The record, however, clearly reveals that

this was not done.

35. The Sole Arbitrator as well as the Commercial Court

have completely misread the terms of the Second Agreement to

mean that there was no requirement for ATPL to submit DPRs. This

finding is not only against the terms of the Second Agreement but

also against sheer common sense and logic. The terms of the

Second Agreement did not a nd could not have implied that ATPL,

the proposed builder, owner and operator may not submit DPR s for

such huge projects. It would be unfathomable that such hydro -

electric power projects could be executed without any DPR s that

would outline its feasibility, viability and potential. It would be

equally absurd to think that without any detailed information about

the projects, including its scope, objective, budget, timelines, etc.,

prepared by experts, such hydro-electric power projects would see

the light of day.

36. The fact that ATPL had submitted DPR for 36 MW Rolep

HEP in three volumes covering various aspects of the project asserts

the indispensible nature of DPRs for the proposed HEPs. We are,

therefore, constrained to notice that the Sole Arbitrator has awarded

specific performance of the Second Agreement, as held modified by

the minutes of the meeting dated 15.10.2004, without the DPRs.

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37. It was argued on behalf of ATPL that the Sole Arbitrator

did not even frame an issue with regard to the relev ant time for

submission for DPRs as SPDC and the SoS in their reply to the claim

petition filed by ATPL had admitted certain facts. However, to the

contrary, SPDC and the SoS took a clear stand that ATPL had failed

to submit DPRs, as required, in their reply to the claim petition.

38. We are of the considered view that this approach of the

Sole Arbitrator as well as of the Commercial Court is contrary to not

only the terms of the Second Agreement but also to common sense

and logic. We hold that the Award of specific performance by the

Sole Arbitrator, in the manner as aforesaid, amounts to patent

illegality on the face of the award and shocks the conscience of this

Court as it veers towards perversity.

39. The Commercial Court while examining the appeal of

SPDC and the SoS against the Award under section 34 of the

Arbitration Act, went on to uphold the grant of specific performance

in favour of ATPL. However, it is seen that the Commercial Court did

not examine the grant of specific performance of the Sec ond

Agreement, as held modified by minutes of the meeting dated

15.10.2004. Thus, for the same reason for setting aside the Award

of specific performance by the Sole Arbitrator, we set aside the

finding of the Commercial Court as well.

40. As we have held that the minutes of the meetings

between the parties do not amount to modification of the Second

Agreement, it necessarily follows that the parties were bound to

carry out their respective obligations. It was ATPL who approached

the Sole Arbitrator for arbitration by filing the claim petition seeking

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specific performance of the Second Agreement. As held by the

Hon‘ble Supreme Court in C. Haridasan vs. Anappath Parakkattu

Vasudeva Kurup & Others

18

, the provisions of section 16 of the

Specific Relief Act, 1963, have to be mandatorily complied with by

the parties seeking relief of specific performance. The relief of

specific performance cannot be granted in favour of a party who has

not performed his obligations under the contract. Section 16

provides that specific performance of a contract cannot be enforced

in favour of a person, inter alia, who has become incapable of

performing, or violates any essential term of the contract that on his

part remains to be performed, or acts in fraud of a contract, or

wilfully acts at variance with, or in subversion of, the relation

intended to be established by the contract; or who fails to prove

that he has performed or has always been ready and willing to

perform the essential terms of the contract which are to be

performed by him, other than terms the performance of which has

been prevented or waived by the defendant.

41. If it is the contention of ATPL that by the subsequent

minutes of the meetings they were not required to perform an

essential term of the contract of taking over the bond amount and

interest thereon which had been borrowed by SPDC and the SoS in

terms of the First Agreement , quite clearly, ATPL has become

incapable of performing and violated the essential term of the

Second Agreement and thus, could not h ave sought its specific

performance. Thus, the question of award of compensation under

18

(2023) SCC Online 36

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section 21 of the Specific Relief Act, 1963, as argued by ATPL, does

not arise. In Kanshi Ram vs. Om Prakash Jawal & Others

19

, the Hon‘ble

Supreme Court held that it is well settled law that granting decree

for specific performance of a contract of immovable property is not

automatic. It is one of discretion to be exercised on sound

principles.

42. The Sole Arbitrator found that SPDC and the SoS had

the right to modify the terms of the agreement under section 63 of

the Indian Contract Act, 1872 and therefore, they were bound by

the decision taken in those meetings. Section 63 only recognises the

right of every promisee to dispense with or remit, wholly or in part,

the performance of the promise made to him, or may extend the

time for such performance, or may accept instead of it any

satisfaction which he thinks fit. However, it does not deal with the

manner in which a party could dispense with it. This manner was

clearly envisaged in clause 25 of the Second Agreement and,

therefore it could have been done only in terms of clause 25 and in

no other way. The reliance of the Sole Arbitrator to section 63 of the

Indian Contract Act, 1872 to validate the theory of modification of

the Second Agreement by the subsequent minutes of the meeting

was clearly misdirected.

43. It is seen that the Sole Arbitrator has taken in oral

deposition of witnesses contrary to the clear language of the terms

of the Second Agreement, the minutes of the meetings as well as

various exchanges between the parties and by doing so held that

19

(1996) 4 SCC 593

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the terms of the Second Agreement had been completely varied so

as to even do away with one of the essential obligations of ATPL to

take over the responsibility of the payment of bond amount, interest

thereon and also provide bank guarantee for the same . It is settled

law that a document speaks for itself and no oral evidence can be

admitted to contradict, vary, add or subtract from its express terms.

The finding of the Sole Arbitrator to that extent is contrary to the

fundamental policy of Indian law. It reflects patent illegality

appearing on the face of the award, which goes to the root of the

matter and not just mere misapplication of the law.

Prayer [E] - on termination of the Second Agreement

44. The learned Commercial Court upheld the opinion of the

Sole Arbitrator that neither the letter dated 26.02.2006 nor the

letter dated 02.05.2008 had the effect of terminating the Second

Agreement. It opined that the unilateral decision of the SoS to issue

letter dated 02.05.2008 cannot be considered to be the decision of

SPDC automatically as it was a separate legal entity. A perusal of

the Second Agreement makes it apparent that there were three

parties to it. The parties were separate legal entities who had

entered the Second Agree ment with specific obligations and

liabilities. It also reflects that there was a specific provision for

serving of notices to each of the parties. Clause 28, which was

invoked by ATPL, is the arbitration clause which provided that all

matters, questions, disputes or differences whatsoever arising

between the parties in respect of construction, meaning, operation

or effect of the contract or relating to the contract or relating to

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breach thereof shall be settled by way of arbitration. It is contended

that the Second Agreement does not contain a termination clause

and therefore it could not have been terminated. In Rajasthan

Breweries Limited vs. The Stroh Brewery Company

20

, a Division Bench

of Delhi High Court held that even in the absence of a specific clause

authorising and enabling either party to terminate the agreement in

the event of happening of the events specified therein, from the

very nature of the agreement, which is private commercial

transaction, the same could be terminated even without assigning

any reason by serving a reasonable notice. The Second Agreement

was an agreement for developing HEPs. The Second Agreement

envisaged ATPL developing, ow ning and operating these HEPs on

BOOT basis for a period of 35 years to be renewed for another 35

years on mutually agreed terms and conditions. 70 years was the

outer limit of the total period contemplated by the Second

Agreement for ATPL to operate the HEPs. ATPL was to transfer the

ownership of the three HEPs after the expiry of the period envisaged

therein. The Second Agreement also contains certain essential

conditions to be fulfilled within certain timelines. The first of which,

as envisaged by the Second Agreement , was for SPDC and the SoS

to transfer the ownership of the three HEPs to ATPL as required by

clause 1, which was admittedly done. The second essential condition

was for ATPL to take over the responsibility of payment of bond

amount, interest thereon and also provide bank guarantee for the

same within a timeline. Admittedly, ATPL has, till date, not taken

20

2000 SCC Online Del 481

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over the responsibility of payment of bond amount, interest thereon

or provided bank guarantee as envisaged by clause 2 of the Second

Agreement. It would be equally absurd to suggest that one of the

parties who had substantial stakes in the three HEPs and was

therefore a signatory to the Second Agreement as an independent

party, could not have terminated it on the failure of the defaulting

party to fulfil its essential obligations merely because another party

did not sign the termination letter issued by the other. There was no

binding clause in the Second Agreement which provided that SPDC

and SoS should only act jointly. Failure of any of the parties to the

Second Agreement to fulf il their respective essential obligations

without which the purpose of the agreement may itself be

unachievable should entitle the suffering party to determine the

contract although there was no termination clause. The fact that the

SoS issued notice dated 22.06.2006 and thereafter, the letter of

termination dated 02.05.2008, is not in dispute. The language of the

notice as well as the letter of termination makes the intention of the

SoS to terminate the Second Agreement, certain. The failure of any

of the parties to comply with the terms of the Second Agreement

would lead to the dispute being referred to arbitration. SPDC has not

protested the termination by the SoS. We are, thus, of the view that

the SoS had the right to terminate the Second Agreement on t he

failure of ATPL to comply with any of its essential terms, even if

there was no specific termination clause. The only question is

whether the termination by the SoS was justifiable. As we have held

that ATPL had failed to take over the responsibility of payment of

the bond amount, interest thereon and also provide bank guarantee

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for the same, which was an essential term of the Second

Agreement, we are of the considered view that ATPL was clearly in

default. ATPL was also in default for not submitting the DPRs for

Chakungchu and Ralong HEPs and the revised DPR for the revised

Rolep HEP. The fact that ATPL had clearly sought to run away from

their most essential obligation under the Second Agreement by

misleading the Sole Arbitrator into believing that the minutes of the

meeting held with L&T on 15.10.2004 had modified the Second

Agreement and thereby SPDC and the SoS had abandoned their

right has also established beyond reasonable doubt that they were

not interested in the three projects as agreed upon. Thus, we are of

the considered view that the termination of the Second Agreement

by the SoS was justified and we set aside the findings of the Sole

Arbitrator as well as the Commercial Court granting prayer [E] in

favour of ATPL.

Prayers [B] & [C]

45. In view of what we have held above, the grant of prayer

[B] and [C] in favour of ATPL by the Sole Arbitrator as well as the

Commercial Court cannot also stand. It is accordingly set aside.

Prayer [F]

46. Prayer [F] was a claim for award of damages for a sum

of ₹496,689,279/- (Rupees forty-nine crores, sixty-six lakhs, eighty-

nine thousand, two hundred and seventy -nine only), in terms of

paragraph 76 of the claim petition. In paragraph 76, ATPL had

pleaded that it had spent huge amounts for field investigation and

survey, preparation of detailed project report, environmental

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studies, geo-technical and geo-physical investigation, construction

of temporary structures, drilling on the river, gauze and discharge

system and cost of establishment, cost of site estab lishment and

cost of consultancy for which it had spent ₹220,278,098/- (Rupees

twenty-two crores, two lakhs, seventy-eight thousand and ninety-

eight only), from 21.12.2002 till 02.05.2008. ATPL therefore claimed

the said amount along with interest @ 9% compounded annual ly on

year to year basis amounting to ₹496,689,279/- (Rupees forty-nine

crores, sixty-six lakhs, eighty-nine thousand, two hundred and

seventy-nine only).

47. The Second Agreement was an agreement for

implementation of the three HEPs on BOOT basis. The Sole

Arbitrator directed the specific perf ormance of the Second

Agreement by SPDC and the SoS for implementation of three HEPs.

SPDC and the SoS submitted that having sought for Specific

Performance, ATPL could not have asked for prayer [F] as well, as

those were expenses which ought to have been incurred by ATPL.

They further submitted that ATPL having quantified damages in lieu

of specific performance in prayer [D], they could not have claimed

damages on account of expenses incurred as claimed in prayer [F]

as well. The Sole Arbitrator, however, granted prayer [A] for specific

performance, the alternative prayer for quantified damages as

claimed in prayer [D] and thereafter, also awarded the claim for

expenses incurred in terms of prayer [F] without assigning any

reason whatsoever for granting them. The direction upon SPDC and

SoS to specifically perform the Second Agreement would necessarily

presuppose that ATPL would have to fulfil their obligations under it.

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This would mean that ATPL would have to incur all the expenses it

reflected as their expenses in prayer [F] and sought to claim it from

SPDC and the SoS. Thus, having granted specific performance of the

Second Agreement, as prayed for in prayer [A] by ATPL, there was

no reason for the Sole Arbitrator to grant prayer [F]. Further, ATPL

had also claimed damages in prayer [D] at the rate of Rs.1.5 crores

per MW for 279 MW for the three projects. This prayer [D] having

been granted in favour of ATPL, it would also cover the expenses

incurred by ATPL for the implementation of the HEPs as per the

Second Agreement as claimed in prayer [F]. There is, however, no

cogent or justifiable reason or rationale to grant prayer [F] by the

Sole Arbitrator. We, therefore, set aside the Award of prayer [F] in

favour of ATPL. The Award, thus, also suffers from non-application

of mind. However, as we have not granted specific performance of

the Second Agreement in terms of prayer [A] and damages in terms

of prayer [D], we leave it to the parties to determine the actual

expenses only that may have been incurred by ATPL and whether in

the facts and circumstances of the case, it is at all payable to ATPL,

by way of arbitration. Needless to say, the issue of any counter-

claim by SPDC and SoS to be considered in this regard, is also kept

open.

Prayer [G]

48. In prayer [G], ATPL had claimed award of damages for a

sum of ₹471,353,405/- (Rupees forty-seven crores, thirteen lakhs,

fifty-three thousand, four hundred and five only), in terms of

paragraph 77 of the claim petition in which it had stated that as per

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the reconciliation of the accounts done on 19.02.2003 the SPDC was

to pay ATPL a sum of ₹21,22,48,608/- (Rupees twenty-one crores,

twenty-two lakhs, forty-eight thousand, six hundred and eight only),

which was lying with them. ATPL also sought interest @9% per

annum from 19.02.2003, till date of payment and it claimed that the

total amount due as on the date of making the claim as

₹471,353,405/- (Rupees forty-seven crores, thirteen lakhs, fifty-

three thousand, four hundred and five only). ATPL also stated that

the calculation of interest from 19.02.2003 on the said amount was

shown in schedule B of the Claim Petition. Clause 2 and clause 3 of

the Second Agreement would be relevant to appreciate this claim

which is extracted below:-

―2. In terms of the superseded Agreem ent dated 18th

April, 1999, the First Party assisted by the Third Party

have borrowed funds amounting to Rupees 50.01 crores

through bonds to finance the implementation of the said

projects which is to be repaid along with the interest by

the First Party and the Second Party. The First and the

Second Party have given a State Government guarantee

to secure the payment of principal and the interest

thereof. It has now been agreed that the Third Party

shall take over the responsibilities of the payment of

Bond Amount upto an amount of Rs.50.01 crores, and

interest at the rate of 12.45% payable half-yearly and

also interest already paid at a higher rate (13.75%) after

reconciliation of account. Reconciliation of accounts shall

be completed within a period of sixty days from the date

of signing of the Agreement. The Third Party shall furnish

necessary Bank Guarantee from a Nationalized Bank

totalling upto Rs.50.01 crores, as well as guarantees for

payment of interest payable on outstanding principle

amount within a period of 12 months of signing of this

Agreement. Further, the Third Party and the First Party,

with the consent of the lenders, shall release State Govt.

Guarantee within 12 months from the date of signing of

this Agreement. The Third Party shall also take over the

responsibilities of payment of Bond amount upto

Rs.50.01 crore together with the interest accrued and

also the expenditures incurred on account of Bond

registration fees, stamp duty, fees paid to the Trustee

Bank and Advocates for Registration of Bond if any.

3. The balance amount of the money raised (Rs.50.01

crores) lying with the First Party and the Second party

shall be released to the Third Party against the equal

amount of Bank Guarantee from any Nationalized Bank

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to be submitted by the Third Party through the Trustee

Bank (Central Bank of India).‖

49. A bare perusal of the above two clauses reflects that

SPDC assisted by ATPL had borrowed funds amounting to ₹50.01

crores through bonds to finance the implementation of the three

projects which was liable to be repaid along with interest by the

SPDC and the SoS in terms of the First Agreement. It is also clear

that SPDC and the SoS had given State Government Guarantee to

secure the payments of principle and interest thereof. Vide clause 2

of the Second Agreement, ATPL agreed to take over the

responsibilities of the payment of bond amount up to an amount of

₹50.01 crores; an interest at the rate of 12.45% , payable half

yearly and also interest already paid at a higher rate (13.75 %)

after reconciliation of accounts. Reconciliation of accounts was to be

completed within a period of sixty days from the date of signing of

the Second Agreement. ATPL was also required to furnish necessary

Bank guarantee from a Nationalised Bank totalling up to ₹50.01

crores, as well as guarantee for payment of interest payable on

outstanding principal amount within a period of 12(twelve) months

of signing of the Second Agreement. ATPL and SPDC, with the

consent of the lenders, was to release State Government Guarantee

within 12(twelve) months from the date of signing of the Second

Agreement. ATPL was also to take over the responsib ility of

payment of bond amount up to ₹50.01 crores together with interest

accrued and also the expenditures incurred on account of bond

registration fee, stamp duty, fees paid to the Trustee Bank and

Advocates for registration of bond if any. Importantly, as agreed

under clause 3 of the Second Agreement, the balance amount of the

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money raised (₹50.01 crores) lying with SPDC and the Government

of Sikkim was to be released to ATPL against equal amount of Bank

Guarantee from any Nationalised Bank to be submitted by the ATPL

through the Trustee Bank (Central Bank of India).

50. Reading clauses 2 and 3 of the Second Agreement

together, it is amply clear that by entering upon the Second

Agreement, SPDC and the SoS had sought to get out of the financial

burden it had incurred under the superseded First Agreement dated

18.04.1999. The balance money in terms of clause 3 of the Second

Agreement was clearly payable only upon ATPL taking over the

sovereign debt of the SoS and guarantee payment of the same

along with the payment of interest and other expen ses already

borne. The Sole Arbitrator, however, directed the payment of

damages in terms of prayer [G] without ATPL taking over the

sovereign debt of the SoS and guaranteeing payment of the same

along with the payment of interest and other expenses. This was not

in terms of the Second Agreement and the Sole Arbitrator by

awarding damages as claimed in prayer [G] made out a new

contract between the parties, which is impermissible. Further, the

Sole Arbitrator proceeded on the basis that the Second Agreement

was modified by the minutes of the meeting dated 15.10.2004 with

L&T. However, even while doing so, the Sole Arbitrator went beyond

even the minutes of the meeting dated 15.10.2004 , which

contemplated ATPL paying the SoS a sum of ₹50.01 crores in three

tranches, which the SoS would use to discharge its sovereign debt.

It was also contemplated therein that SPDC need not pay ATPL the

balance of the sum of ₹50.01 crores lying with it as it would be used

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to service the interest on the debt till the repayment of the same

from out of the monies received from ATPL in three tranches.

Therefore, the Sole Arbitrator, while awarding prayer [G], seems to

have gone not only beyond the terms of the Second Agreement but

also beyond the terms of the minutes of the meeting dated

15.10.2004. It reflects complete non-application of mind as well and

the decision on this aspect is irrational.

Prayer [H]

51. As ATPL has not challenged the Sole Arbitrator‘s Award

declining to grant damages in terms of prayer [H], we do not

interfere with it.

Prayers [J] & [K]

52. Consequently, the Award of interest in terms of prayer

[J] and costs in terms of prayer [K] are also set aside. ATPL may

claim the actual cost incurred by them, as prayed for in prayer [F]

and interest thereon by way of fresh arbitration, if they so desire.

SPDC and SoS are at liberty to file their counter-claim in this regard.

Conclusion

53. In conclusion, the impugned judgment — to the extent it

declines grant of prayers [D] and [F] in favour of ATPL — is upheld.

The finding that Rolep Hydro Electric Power Co. Ltd. and Velankani

Renewable Energy Private Limited were not necessary parties is

upheld. The finding of the Commercial Court that the recital in

Second Agreement makes it clear that the parties had in fact agreed

to do the project on BOOT basis is upheld. The setting aside of the

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finding of the Sole Arbitrator on Issues No.9, 11 and 20 are also

upheld. The finding of the Commercial Court , upholding the

reasoning of the Sole Arbitrator that the letter dated 02.05.2008 did

not terminate the contract (prayer [E]) and that the ground for

termination was unjustified, is set aside. It is found that on the

failure of ATPL to fulfil the essential term of the Second Agreement

of taking over the responsibility of bond amount, interest thereon as

well as provide bank guarantee for the same, SoS had rightly issued

the letter dated 02.05.2008 terminating the contract. The finding of

the Commercial Court that the petitioners therein (SPDC and SoS)

had relinquished their claim for submission of Bank Guarantee in

terms of the minutes of the meetings dated 09.03.2004, 26.04.2004

and 15.10.2004, is also set aside. It is held that the Commercial

Court‘s finding that clause 25 of the Second Agreement did not

disentitle the parties to amend it is grossly erroneous and against

the plain and simple intention of clause 25. The language of clause

25 is clear and unambiguous. It is also held that the finding of the

Commercial Court that the minutes of the meeting s dated

09.03.2004, 26.04.2004 and 15.10.2004, were in the nature of

addendum and supplemental is also grossly erroneous and against

the clear and unambiguous language and intention of clause 25 of

the Second Agreement. The finding of the Commercial Court ,

upholding the reasoning of the Sole Arbitrator that since SPDC and

SoS had failed to perform their promise as per the minutes of the

meetings dated 09.03.2004, 26.04.2004 and 15.10.2004 , they had

relinquished their claim for Bank Guarantee and therefore there was

no question of breach by ATPL, is also set aside. Grant of specific

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performance (prayer [A]), perpetual injunction (prayer [B]) and

mandatory injunction (prayer [C]) against SPDC and SoS by the

Sole Arbitrator in favour of ATPL , which was upheld by the

Commercial Court, is set aside. The award of damages in favour of

ATPL, in terms of prayers [F], [G], [I] by the Sole Arbitrator are set

aside. Grant of interest and cost in terms of prayers [J] and [K],

consequently, is also set aside. Non-grant of prayer [H] by the Sole

Arbitrator to ATPL is not interfered with. ATPL may, if they so desire,

claim the actual cost incurred by them in terms of prayer [F] and

interest thereon against SPDC and the SoS by way of fresh

arbitration. SPDC and SoS are at liberty to file their counter-claim in

this regard. Consequently, Arbitration Appeal No. 1 of 2020 is

allowed to the extent above, while Arbitration Appeal No. 1 of 2021

preferred by ATPL stands dismissed.

54. Consequently, the amount deposited b y SPDC and SoS

in terms of the order of the Hon‘ble Supreme Court dated

14.10.2022 in Special Leave Petition (Civil) No. 18211-18212 of

2022, shall be released along with interest accrued thereon.

55. The two Appeals stand disposed of accordingly.

56. Parties to bear their respective cost.

( Biswanath Somadder ) ( Bhaskar Raj Pradhan )

Chief Justice Judge

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