Delhi High CourtGail (India) Ltd. vs Osram India Pvt Ltd. on 9 March, 2017Author:S. MuralidharBench:S. Muralidhar$~
*      IN THE HIGH COURT OF DELHI AT NEW DELHI
12.
+                             O.M.P. (COMM) 478/2016

       GAIL (INDIA) LTD.                              ..... Petitioner
                      Through: Mr. Sridharan Ramkumar, Dr. Sheetal
                      Vohra and Mr. Manvendra Gaur, Advocates.

                              versus

       OSRAM INDIA PVT LTD.                       ..... Respondent
                    Through: Mr. Dayan Krishnan, Senior Advocate
                    with Mr. Diwakar Maheshwari, Mr. V Gupta
                    Advocates

       CORAM: JUSTICE S. MURALIDHAR

                              ORDER%                             09.03.20171. The challenge by GAIL (India) Ltd. („GAIL‟) in this petition underSection 34of the Arbitration and Conciliation Act, 1996 is to an Award
dated 25th September 2014 passed by the Arbitral Tribunal („AT‟) in the
disputes between GAIL and Osram India Pvt. Ltd. („OIPL‟) in the disputes
arising out of a gas transmission agreement („GTA‟) dated 1st May 2000.Background facts2. The GTA was for a period of 15 years i.e. up to 31st December 2022. In
the GTA, OIPL is described as the „Shipper‟ and GAIL as the „Transporter‟.
In terms of Clause 2.2 of the GTA, the Shipper and the Transporter were to
enter into transactions in relation to „redelivery point‟ whereby the Shipper
was to contract for "specified capacity for a specified duration forOMP (Comm.) No. 478 of 2016                                       Page 1 of 21transportation of the gas through the Transporter‟s facilities and the
Transporter shall provide Gas Transmission services for such duration."
Such transaction was to be governed by the GTA and by other terms agreed
between the parties confirming the transaction.3. In terms of Clause 2.7(iii) of the GTA, the gas supplied was subject to
Shipper‟s „termination security‟ as per Clause 13.3 of the GTA. The GTA
could be terminated prior to 31st December 2022 on limited grounds as
stated in Clause 5.5 thereof. The grounds were detailed in Clause 13 and/or
11.8. The GTA required the Shipper to provide a bank guarantee („BG‟)
covering 60% of its agreed liability in case of earlier termination of the GTA
and a letter of credit („LC‟) under Clause 8.10 of the GTA covering regular
payment for use of facilities. It is stated that a „termination' BG was
submitted by OIPL to GAIL on 1st November 2007 for a sum of
Rs.3,34,34,568. On 8th November 2007, the gas transportation commenced
after the „Spur Line‟ (pipeline) came to be connected to OIPL‟s delivery
point.4. According to GAIL, at the time the said Spur Line was commissioned, its
estimate cost was Rs.4.88 crores. The fixed Spur Line charges in the GTA
was calculated on the above estimated cost by using the discounted cash
flow method in order to give a return of 12% post tax over a 15 year period.5. Clause 6.1 of the GTA provided for transmission charges. Apart from the
transmission charges, the Shipper was also to pay „fixed monthly charges
towards Spur Line‟. Annexure-I to the agreement provided that "in addition
to the transmission charges to be paid in transmission of the said Annexure,OMP (Comm.) No. 478 of 2016                                        Page 2 of 21the Shipper shall pay fixed monthly spur line charges of Rs.9,28,738 and
these charges shall be payable by the Shipper irrespective of gas
transmission/drawl from the start of the first CT agreement till the term of
this agreement or its extension."6. As far as the LC was concerned, under Clause 8.0 it was to be opened in
favour of GAIL for an amount determined in any contract year by reference
to the first day of such contract or equivalent in aggregate to Rs. (16 X
redelivery upon MDQ X the sum of the transmission rate and Spur Line
charges per day + applicable taxes and duties). Under Clause 8.2, the
Shipper was to make a security deposit of Rs.9,28,738.7. Clause 13 provided for termination and reads as under:Clause 13-Termination
       13.1 Termination of Agreement:(a) In addition to the other provisions in this Agreement,
       Transporter may serve a notice of its intention to terminate this
       Agreement which the Transporter believes is the cause of the
       Event of Default upon the occurrence and continuation of any
       of the following event (each a "Shipper Event of Default"),
       unless any such event occurs as a result of a breach by the
       Transporter of its obligations under this Agreement or by an
       event of Force Majeure or, except as provided for in Clause 12:i. the shipper fails to pay when due any amounts owed to the
       Transporter under this Agreement for which shipper has
       received the fortnightly invoice and where such failure
       continues for not less than 30 (thirty) days following the date on
       which such payment is due:ii. the shipper fails to issue, extend, replenish or replace any
       shipper LC and Bank Guarantee as per Exhibit-E within the
       time period specified in this Agreement.OMP (Comm.) No. 478 of 2016                                          Page 3 of 21iii. The Shipper commits any other material breach of its
       obligations under this Agreement;iv. If shipper become insolvent.(b) In addition to the other provisions in this Agreement,
       Shipper may serve a notice of its intention to terminate either
       this Agreement which the Shipper believes in the cause of the
       event of default upon the occurrence and continuation of any of
       the following events (each a "Transporter Event of Default"),
       unless any such event occurs as a result of a breach by the
       shipper of its obligations under this Agreement or by an event
       of force majeure or, except as provided for in clause 12:i. the transporter commits any material breach of its obligations
       under this agreement.'ii. When, under this agreement, during any 90 (ninety) days,
       the shortfall quantity occurs for 5 (five) consecutive days or
       during any 365 (three hundred and sixty five days, the shortfall
       quantity occurs for consecutive 20 (twenty) days.iii. If transporter becomes insolvent.13.2 Termination procedurea) Termination by the transporter

       i. Upon the occurrence and continuation of any shipper event of
       default, the transporter may deliver a notice (the "Shipper
       default notice") to the shipper. Following a shipper event of
       default, the transporter shall have the right to suspend the
       performance of its obligations under the agreement until such
       default has been cured in accordance with the provisions of this
       clause 13.2. Any non-performance by the transporter of its
       obligations under this Agreement, during such period of
       suspension shall not amount to a transporter event of default.The shipper shall be liable for payment of transmission chargesOMP (Comm.) No. 478 of 2016                                         Page 4 of 21including spur line charges and transporter shall not be liable
       for any shortfall quantity for such period of suspension.ii. Following the receipt of any shipper default notice, the
       shipper shall (1) promptly notify the transporter of the measures
       it has taken or intends to take to remedy the shipper event of
       default which is the subject of such notice, and (ii) have a
       period of 30 (thirty) days from the date of such receipt (or such
       longer period as the transporter may specify in such notice) (the
       shipper cure period) in which to remedy such breach or default
       and shall act as a reasonable and prudent person in doing so.iii. During any shipper ;cure period, both parties shall, save as
       otherwise provided herein, continue to perform their respective
       obligations under this agreement and shall not, whether by act
       or omission, impede or otherwise interfere with the endeavours
       of either party to remedy the breach or default to which such
       shipper cure period relates. Provided the transporter shall not
       be required to perform its obligations under this clause 13.2 (a)(iii). If the transporter has elected to suspend the performance
       of its obligations as specified in clause 13.2(a)(i) above.iv. Following the expiry of the shipper cure period, if the
       shipper event of default to which the shipper default notice
       relates is continuing, the transporter may terminate this
       agreement by written notice (a transporter termination notice) to
       the shipper and this agreement shall terminate with immediate
       effect on the date of such transporter termination notice and
       bank guarantee submitted by the shipper shall be
       encashed/forfeited.b) Termination by the shipper.i. Upon the occurrence and continuation of any transporter
       event of default, the shipper may deliver a notice (the
       "transporter default notice") to the transporter. Such notice shall
       specify in reasonable detail the transporter event of default to
       which such notice relates.OMP (Comm.) No. 478 of 2016                                          Page 5 of 21ii. Following the receipt of any transporter default notice, the
       transporter shall (i) promptly notify the shipper of the measures
       it has taken or intends to take to remedy the transporter event of
       default which is the subject of such notice, and (ii) have a
       period of 30 (thirty) days from the date of such receipt (or such
       longer period as the shipper may specify in such notice) (the
       transporter cure period) in which to remedy such breach or
       default and shall act as a reasonable and prudent person in
       doing so.iii. During any transporter cure period, both parties shall, save
       as otherwise provided herein, continue to perform their
       respective obligations under this agreement and shall not,
       whether by act or omission, impede or otherwise interfere with
       the endeavours of either party to remedy the breach or default
       to which such transporter cure period relates.iv. Following the expiry of the transporter cure period, if the
       transporter event of default to which the transporter default
       notice relates is continuing, the shipper may terminate this
       agreement by written notice (a shipper termination notice) to
       the transporter and this agreement shall terminate with
       immediate effect on the date of such shipper termination notice.13.3 Termination payment

       If this Agreement is terminated prior to the term of this
       Agreement as per clause 13.2 a), then transporter has the right
       to suspend the supplies and shipper shall make the termination
       payment as per Exhibit E within 15 days of such termination.
       Shipper will submit an irrevocable and uncontrolled bank
       guarantee as per the format at Exhibit C. In case the shipper
       fails to make the termination payment as per this clause 13.3
       then the transporter has the right to encash such bank guarantee.
       However, the shipper shall be liable for payment of balance
       40% of respective five or three or two years tariff of spur line as
       the case may be for contracted quantities, in accordance withOMP (Comm.) No. 478 of 2016                                          Page 6 of 21Exhibit E, if this agreement is terminated by transporter on the
       occurrence of default by the shipper as per the clause 13.1 (a)
       during the period of the contract.Until the termination of this agreement, the amount of the bank
       guarantee as mentioned above shall be as per the amount given
       in Exhibit E for respective contract years and the shipper shall
       renew the bank guarantee 15 days before its expiry.Bank guarantee for termination payment for first five (5) years
       of the contract shall be given by the shipper to the transporter as
       per the schedule given below:Time period                    Amount       of bank
                                         guarantee
          At the time of signing         10% of the amount as
          of GTA                         per Exhibit E.
          At the time of award           40% of the amount as
          of spur line project           per Exhibit E.
          After       mechanical         70% of the amount as
          completion of spur             per Exhibit E.
          line
          15 days prior to               100% of the amount as
          commissioning        of        per Exhibit E.
          spur lineIf the shipper does not replace the bank guarantee of higher
       amount as per the schedule and as informed by the transporter
       above then the transporter shall have unrestricted right to
       encash the bank guarantee and withheld the development of the
       project of laying of spur line.In the event not pertaining to transporter event of default, if the
       shipper terminates this agreement before the commissioning of
       spur line or before the commencement of transmission services
       by the transporter, then the transporter shall forfeit the security
       deposit and encash that portion of bank guarantee submitted byOMP (Comm.) No. 478 of 2016                                          Page 7 of 21the shipper. However, shipper shall be liable to pay the
       termination payment as applicable as per this clause 13.3."8. The above clauses reveal that if the agreement were to be terminated prior
to fixed term, as per Clause 13.2 (a) then GAIL had the right to suspend the
supplies. In such event, OIPL was to make termination payment as per the
Exhibit E within 15 days of the termination.9. Under Clause 13.3, OIPL was to submit an irrevocable and unconditional
BG. In case OIPL failed to make payment under Clause 13.3, GAIL had the
right to encash such BG. In such event, OIPL was liable for payment of the
balance 40% of respective five or three or two years tariff of spur line as the
case may be for contracted quantities in accordance with Exhibit E. This
Exhibit E specified the termination payment. For instance, if it was during
the first five years of operation from the start date, the payment would be for
a sum equivalent to 5 years of tariff of spur line for contracted quantities.Withdrawal of spur line charges10. At this stage it requires to be noticed that in 2007 the Petroleum and
Natural Gas Regulatory Board („PNGRB‟) was constituted. It notified the
Petroleum and         Natural   Gas Regulatory   Board    (Access    Code       for
Common Carrier or Contract Carrier Natural Gas Pipelines) Regulations,
2008. In terms of the GTA, the transmission charges for the trunk line and
the spur line were to be as per the recommendations of the Tariff
Commission/Regulator. After the above regulations were notified, an
amendment was executed in March 2010 between the parties. The supplies
continued after the amendment.OMP (Comm.) No. 478 of 2016                                           Page 8 of 2111. On 25th August 2010, PNGRB took a decision that the additional spur
line tariff should not be charged. Accordingly, GAIL informed OIPL by a
letter dated 2nd September 2011 that it would charge tariff for the spur line as
per the transmission rate with effect from March 2011.12. Upon expiry of the termination BG dated 1 st November 2007, OIPL
submitted a fresh BG for the same amount on 22nd October 2011 which was
valid up to 16th September 2012 and became renewable on 1st October 2012.
GAIL makes the point that this was an acknowledgment by OIPL of its
obligation to maintain a BG to cover the termination payment in terms of
Clause 13.3 even in the absence of any liability to pay the spur line charges.
It was also acknowledgment that both parties understood that the value of
the BG shall be in terms of the quantum already determined under Exhibit E
of the agreement. It is stated that on 1st August 2012, OIPL stopped drawing
gas. According to GAIL, this has been in violation of the procedure laid
down in Clause 13.2 of the GTA since none of the conditions envisaged in
Clauses 11.8 or 13 of the GTA existed.13. On 6th August 2012, GAIL drew attention of the OIPL to the effect that
there was nil consumption of gas as far as OIPL was concerned and sought
reason for such stoppage of gas. OIPL by its letter dated 28 th August 2012
informed GAIL that it had stopped production at Sonepat Plant and,
therefore, did not require any gas. The supplier of the gas IOCL had also
been informed likewise. The letter dated 28th August 2012 stated that it
should be treated as OIPL‟s notice for termination of the GTA.OMP (Comm.) No. 478 of 2016                                          Page 9 of 2114. On 4th October 2012, GAIL replied to the said letter inviting attention of
OIPL toArticle 13.3of the GTA which made it incumbent on OIPL to settle
the payment following which GAIL would have to encash the BG. GAIL
also requested OIPL to settle the balance 40% of the termination payment.
GAIL proceeded to invoke the BG on 5th October 2012. This led to OIPL
invoking the arbitration clause by the notice dated 1 st April 2013 and
seeking the appointment of a three Member Arbitral Tribunal („AT‟).Proceedings before the AT15. Before the AT, OIPL filed a claim inter alia claiming the amount of the
BG which was invoked together with interest @ 18% per annum. This apart
GAIL filed its reply and a counter claim which contained six claims.
Counter claim No.1 was for Rs.2,22,89,712 being the 40% of termination
payment. Rs.1,15,159 towards interest on late payment of invoices. Rs.
5,00,926/- towards ship or pay and imbalances charges, Rs.l,728.35p
towards various invoices/tax certificates. The further counter claims were
towards interest at the rate of 18% per annum on the balance amount of 40%
of the termination payment till the date of payment and for costs.16. The AT decided the dispute on the basis of documents already filed by
the parties, thus dispensing with the recording of evidence. Before the AT, a
factual note was filed on behalf of GAIL in which inter alia it was pointed
that fixed spur line charges were based on the estimated capital cost as by
using the discounted cash flow method. The estimated cost of the spur line
charges was Rs.4.88 crores. It was pointed out that from 5 th August 2010,
GAIL Gas Ltd., a subsidiary of GAIL, was also drawing gas from the saidOMP (Comm.) No. 478 of 2016                                          Page 10 of 21spur line at two different locations.17. In the written submissions by GAIL before the AT inter alia it was
submitted that the BG was a separate and distinct contract independent of
the primary contract i.e. the GTA. Therefore, the encashment of the BG did
not depend upon adjudication of disputes arising out of the GTA.
Accordingly it was submitted that with the BG not having any arbitration
clause, invocation of BG by GAIL could not be the subject matter of
arbitration.18. As far as the merits were concerned, it was pointed out that there was
unilateral repudiation of the contract by OIPL by its letter dated 28 th August
2012 and this was contrary to the procedure envisaged under the GTA. Since
the GTA stood terminated for the default of OIPL, GAIL was entitled to
termination payment [which GAIL now termed as liquidated damages
(„LD‟)] underSection 74of the Indian Contract Act, 1872 („ICA‟). It was
further submitted that the termination payment under Clause 13.3 "is to
compensate the Transporter for quantified damages in the event contract
comes to an end prematurely." The quantification thereof was in terms of
Exhibit E. According to GAIL, this was simply a "genuine, agreed and pre-
estimation of damages i.e. loss of profit which would otherwise be
impossible to quantify." It was pointed out that irrespective of the spur line
charges not being levied in terms of the decision of PNGRB it would not in
any manner affect the termination payment. It was further specifically
pleaded by GAIL as under:"Nor does it make any difference that though the spur line was
       initially designed as a dedicated pipeline, it has subsequently been putOMP (Comm.) No. 478 of 2016                                         Page 11 of 21to use for other customers. The fact which remains and is
       uncontroverted is that had the contract continued to its full terms, the
       Respondent would have continued to recover transportation charges
       from the claimants for the contracted quantities and consequently
       would have made profits which it has been deprived of for about 10
       years. In these circumstances, the claim of termination payment is fair
       and just and has been properly quantified. In any event, the
       Respondent is entitled to reasonable damages for breach of the GTA."19. The case of OIPL before the AT was, however, that the only purpose of
charging the monthly fixed spur line charges was to enable GAIL to recover
its cost in relation to laying down of pipe line for transportation of gas to
OIPL. Since that cost had already been recovered, and the spur line charges
stood withdrawn, there was no justification for GAIL to have invoked the
termination BG. GAIL was, therefore, according to OIPL required to return
to it the original BG.20. It was also pleaded by OIPL on the strength of decision inDLF
Universal Limited v. Director, Town & Country Planning, Haryana(2010)
14 SCC 1 that the AT could look into the purpose of the contract to interpret
it. It was further contended that even assuming that GAIL could claim
termination payment it had to follow the procedure under Clause 13.2 (a)(i)
for which there had to be a „Shipper Event of Default‟.Impugned Award21. In the impugned Award, the AT negatived the preliminary objection
regarding the arbitrability of the claim since it was not raised in the first
instance underSection 16of the Act. In any event the question was really
whether GAIL was entitled to recover termination payment and not whetherOMP (Comm.) No. 478 of 2016                                         Page 12 of 21the BG has been rightly invoked.22. As regards the merits of the claim, the AT purportedly summarised the
submissions of learned Senior counsel appearing on behalf of the GAIL as
regards the estimated cost of the pipeline and the calculation of the fixed
spur line charges. The AT then observed that: "There is no dispute that
termination payment was to recover the spur line cost from the claimant fir
the dedicated pipeline through which gas was being supplied to the
claimant." As regards the merits, the AT noted that the spur line from which
gas was being supplied has ceased to be a dedicated pipeline. The PNGRB
had on 23rd August 2010 ordered that GAIL could not charge any additional
tariff for such line. The AT then concluded that since the termination
payment was based upon the spur line charges calculated for the period of 5
years, "we are clear ....that after the issue of notification by the Regulatory
Board prohibiting the gas companies from recovering spur line charges,
GAIL would not be entitled to claim any termination payment on the based
upon spur line charges. Since in our view the Respondent was not entitled
to termination payment, it had no right to recover the same by encashing the
bank guarantee." Accordingly, the AT ordered the BG amount to be
refunded to OIPL. It further held that OIPL was not liable to pay the balance
40% of the termination payment. Interest @ 12% per annum was allowed on
the above sum. No further claim of OIPL including the claim for loss of
reputation was allowed.23. The counter claims of GAIL were rejected in toto since it was held that
GAIL would not be entitled for balance termination payment. Only counterOMP (Comm.) No. 478 of 2016                                         Page 13 of 21claim No. 3 of GAIL to the extent of Rs.5,02,654.35 was allowed. This was
directed to be adjusted against the BG sum that was encashed.Submissions on behalf of GAIL24. It is submitted by Mr. Sridharan Ramkumar, learned counsel appearing
for GAIL, that the AT erred in linking up the termination payment with the
fixed spur line charges. He pointed out that under Clause 13.3, in the event
of a premature termination of the agreement, GAIL was entitled to recover
the termination payment. He submitted that Exhibit E only indicated the
measure for quantification of the termination payment. He stressed that the
statement in the impugned Award that there was no dispute that the
termination payment is only for recovering the cable cost of laying the spur
line was erroneous. There was no such concession made by GAIL. He
submitted that the AT misconstrued the written submissions of GAIL in this
regard. He submitted that there was a clear breach of contract committed by
OIPL attractingSection 39of the ICA. The termination was traceable to
Clause 13.1 (a) of the GTA.25. Mr. Ramkumar further pointed out that what was sought to be
compensated was a genuine, agreed and pre-estimation of damages.
According to him this fell within the parameters ofSection 74of the ICA
and the decision of Division Bench in ONGC v. Saw Pipes (2003) 5 SCC
705 would apply. He submitted that had the contract continued to its full
term, the GAIL would have continued to receive transportation charges from
OIPL for the contracted quantities and would have made profits which it
now has been deprived of for about 10 years. Thus the termination paymentOMP (Comm.) No. 478 of 2016                                       Page 14 of 21was justified even in law.26. According to Mr. Ramkumar the AT's interpretation of the intention of
parties was wholly erroneous assumption. The AT had virtually re-written
the GPA. This was against fundamental policy of India thus attractingSection 34(2)(b)(ii)of the Act. Mr. Ramkumar also pointed out that
although the spur line charges were removed with effect from March 2011
and the contract was amended in September 2011, the renewed BG was not
submitted by OIPL thereafter. The dispute arose only in August 2012 when
OIPL unilaterally stopped drawing the gas without any prior intimation to
GAIL. Reliance is placed on the decision inONGC Limited v. Garware
Shipping Corporation Limited(2007) 13 SCC 434, Provash Chandra
Dalui v. Biswanath BanerjeeAIR 1989 SC 1834, Bharat Coking Coal v.
Lalchand Ltd. v. Annapurna Construction AIR 2003 SC 3660, Arosan
Enterprises Ltd. v. Union of India AIR 1999 SC 3804 to urge that the AT
could not have relied on evidence outside the terms of the agreement.
Reference is also made toSection 38(3)of the Act in this regard.Submissions on behalf of OIPL27. Mr. Dayan Krishnan, learned Senior counsel appearing on behalf of
OIPL, submitted that in accordance with Clause 8.10 an LC had been
opened by OIPL in the sum of Rs.39,40,000. The LC was also calculated on
the basis of the monthly fixed spur line charges. This also formed the basis
of the termination BG. Once, PNGRB had decided that there would be no
justification for any spur line charges, GAIL stopped charging the said
monthly fixed spur line charges from March 2011. A fresh LC ofOMP (Comm.) No. 478 of 2016                                          Page 15 of 21Rs.6,10,319 was opened by OIPL. However, despite regular follow up and
reminders, GAIL refused to return his original termination BG which also
had to be reworked. He pointed out that OIPL was constrained to close its
operation at Sonepat Plant on 1st August 2012. He submitted that the GAIL
was kept duly informed of the inability of OIPL to continue to avail the gas
supply transported through the GAIL pipelines.28. Mr. Krishnan submitted that the failure to observe the procedure under
Clause 13.2(a) of the GTA has vitiated the action of GAIL in invoking the
termination BG. Mr. Krishnan maintained that the termination BG emanated
from Exhibit E. The entire basis for calculating the amount for which the
BG was issued was only the monthly fixed spur line charges which itself
stood withdrawn from March 2011. It is submitted that this Court is not
expected to sit in appeal over the decision of the AT. The interpretation of
the contract by the AT was final unless it is so perverse as to shock the
judicial conscience of the Court. Reliance is placed onAssociate Builders v.
Delhi Development Authority215 (2014) DLT 204 (SC) and National
Highways Authority of India v. ITD Cementation India Limited(2015) 14
SCC 21.29. Mr Krishnan submitted that the plea that termination payment was being
claimed as LD was but not pleaded before the AT. Reference is made to the
decision inDelhi Jal Board v. Kaveri Infrastructure Pvt. Ltd.206 (2014)
DLT 136 to urge that GAIL cannot better its case in aSection 34petition
and go beyond the pleadings before the AT. Reliance is placed on the
decision in Rashtriya lspatNigam Ltd. v. Dewan Chand Ram Saran(2012)OMP (Comm.) No. 478 of 2016                                       Page 16 of 215 SCC 306 to urge that even if AT construes the terms of a contract in an
unreasonable manner it would not mean that the Award would be set aside
on that ground. It is further submitted that the Court does not have
jurisdiction to modify the Award underSection 34of the Act.Reliance is
placed on the decisions inMcDermott International Inc. v. Burn Standard
Co. Ltd.(2006) 11 SCC 181 and Puri Construction Pvt. Ltd. v. Larsen &
Toubro Limited(decision dated 20th April, 2015 in FAO (OS) 21 of 2009
(DB)].Scope of judicial review of arbitral awards30. At the outset the Court would like to observe that the scope of the
judicial review of an arbitral Award underSection 34of the Act is well
settled. It has been dealt with in extenso by recent decision of the Supreme
Court inAssociate Builders v. Delhi Development Authority(supra) and
National Highways Authority of India v. ITD Cementation India Limited(supra). While it is correct that the AT normally has the final word on merits
as well as interpretation of the contract, the limited scope of enquiry by the
Court is whether the AT has adhered to the clauses in the contract in terms
ofSection 28(3)of the Act and whether the interpretation placed thereon is
so perverse so as to shock the judicial conscience. The Court has to ask
question whether the Award could be said to be opposed to the fundamental
policy of India.Justification for Termination Payment31. In the present case it must be noticed straightway that the central
question was whether GAIL was justified in realising the terminationOMP (Comm.) No. 478 of 2016                                        Page 17 of 21payment in terms of Clause 13.3 of the GTA. Incidental to this was whether
the action of GAIL invoking and encashing the termination BG was
justified.32. A perusal of Clause 13.3 of the GTA reveals that termination payment
had to be calculated in terms of Exhibit E which in turn referred to spur line
charges. However there is nothing in Clause 13.3 which indicates that in the
absence of any spur line charges, no termination payment would be
recoverable. In other words, the right of GAIL to recover termination
payment under Clause 13.3 did not hinge on whether the spur line charges
continued to operate. Merely because Exhibit E refers to spur line charges
would not mean that it is determinative of the entitlement of GAIL to the
termination payment. The spur line charges under Exhibit E only provide the
measure for quantification of the termination payment and nothing more.33. The parties did not dispute the GTA as far as GAIL‟s entitlement to
recover termination payment. Even if the spur line charges were withdrawn
there was no reworking of the GTA by the parties to dispense with the
clause relating to termination payment. The correspondence exchanged
between the parties also do not show that OIPL ever demanded that the
clause relating to termination payment be done away with only because the
spur line charges had stood withdrawn. In this regard, a reference may be
made to the letters written by OIPL after the withdrawal of its spur line
tariffs in March 2011.34. The fact remains that a renewed BG was in fact submitted by OIPL to
GAIL on 22nd October 2011 in terms of Clause 13.3. If the understanding ofOMP (Comm.) No. 478 of 2016                                        Page 18 of 21the parties, as claimed by OIPL, was that after the withdrawal of the spur
line charges no termination payment was liable to be made then the question
of renewing the BG for that purpose did not arise. In fact the BG is an
additional one.35. The second aspect of the matter is that while the LC amount was
reworked, the amount of the termination BG was not. After the PNGRB‟s
order dated 19th October 2010 and clarification issued by it on 21 st October
2010, both parties continued Clause 13.3 of the termination BG in terms
thereof.36. The third aspect of the matter is that OIPL has never attempted to defend
its unilateral termination of the GTA. The plea that the procedure under
Clause 13.1(a) was not followed by GAIL, in the circumstances, appears to
be misconceived. It is, in this context, be noted that sub-heading of Clause
13.2(a) is „termination by Transporter‟ whereas Clause 13.2(b) is
„termination by Shipper‟. In the present case the termination was by the
Shipper but without following the procedure under Clause 13.2(b). There
was no occasion for GAIL to deliver any Shipper default notice under
Clause 13.2(a) for the simple reason that OIPL persuaded the GAIL with a
fait accompli. It is not even denied by OIPL that it stopped availing of gas
supply through the pipeline with effect from 1 st August 2002. On 20th
August 2012, it attributed this to incurring of heavy financial losses and the
consequential stoppage of production from the Sonepat Plant. It simply
asked GAIL to treat the said letter as notice for termination of GTA. Earlier
to this also the letter written by OIPL was simply asking for return of the BGOMP (Comm.) No. 478 of 2016                                        Page 19 of 21due to losses suffered by OIPL and not because of the withdrawal of the
spur line charges.37. Consequently, the Court is of the view that there was no occasion for the
AT to have interpreted Clause 13.3 as ceasing to operate only because the
spur line charges stood withdrawn. This was a wholly erroneous
interpretation consistent with what is intended by the parties. Apart from
being contrary toSection 38(3)of the Act, the Court is also of the view that
the interpretation is so perverse that it cannot be sustained in law. It has to
be held to be opposed to the fundamental policy of India as understood
underSection 34(2)(b)(ii)of the Act and explained by the Supreme Court inAssociate Builders v. DDA(supra).38. The Court would also like to observe that the statement made in the
impugned Award to the effect that there was no dispute that the termination
payment is only to recover the cost of laying the spur line appears contrary
to the written submissions filed by GAIL before the AT.Conclusion39. For the aforementioned reasons, the Court is unable to sustain the
impugned Award to the extent it has allowed the claim of OIPL for return of
the BG amount together with interest. That portion of the impugned Award
is hereby set aside.40. The Court also sets aside the impugned Award to the extent it rejected
the counter claims of GAIL other than Claim No.3 which is only for the
reason that the AT erroneously held GAIL not being entitled to recoverOMP (Comm.) No. 478 of 2016                                         Page 20 of 21termination payment. Consequently, while setting aside the impugned
Award to the extent it has rejected GAIL‟s counter claims other than counter
claim No.3, the Court observes that GAIL would be entitled for going in for
a fresh arbitration as regards its counter claims (other than Counter Claim
No.3).41. The petition is disposed of in the above terms but in the circumstances
with no order as to costs.S. MURALIDHAR, J
MARCH 09, 2017
dnOMP (Comm.) No. 478 of 2016                                       Page 21 of 21