M/s JSW ISPAT STEEL LIMITED (NOW KNOWN AS JSW STEEL LIMITED) v. M/S GAS AUTHORITY OF INDIA LIMITED

Judgment

#1. This is an appeal filed under Section 37(1)(c) of the Arbitration and Conciliation Act, 19961, read with Section 13 of the Commercial Courts Act, against the judgment dated 20.12.2023 passed by the Learned Single Judge of this Court in the O.M.P (Comm.) No. 1 “the Act’ hereinafter FAO(OS)(COMM) 4/2024 249/2020, titled M/s Gas Authority of India Ltd. vs M/s JSW Ispat Steel Ltd., whereby the respondent’s petition under Section 34 of the 1996 Act has been partly allowed, and the award passed in favour of the petitioner (Appellant herein), has been set aside. FACTUAL BACKGROUND

#2. The brief factual matrix necessary for the purposes of adjudication of the present appeal is delineated below.

2.1 The Appellant is a company engaged in the operation of a sponge iron and hot rolled coil plant located in Dolvi, District of Raigarh, Maharashtra.

2.2 The respondent is a state owned natural gas corporation specialising in the transmission of natural gas, petrochemicals, and city gas distribution.

2.3 In order to obtain continuous supply of natural gas, the appellant and the respondent entered into a contract dated 10.09.1991 (hereinafter referred to as the “Primary Agreement”). Under this contract, the respondent agreed to supply natural gas as per the requirement of the appellant, subject to a maximum quantity of 1.00 Million Metric Standard Cubic Metres per Day (MMSCMD).

2.4 The payment structure for the gas supplied under the Primary Agreement was: (i) Price of the gas supplied, including a transportation FAO(OS)(COMM) 4/2024 charge of INR 60.60 per thousand standard cubic meter, and (ii) a monthly service charge/transportation charge, calculated using a specified formula, designed to recover the operational costs and maintenance costs associated with the gas supply.

2.5 Subsequently, a supplementary agreement was entered between the parties on 30.03.1998 (hereinafter referred to as the “Supplementary Agreement”), which modified and substituted certain provisions of the Primary Agreement, particularly with respect to the charges for the gas supply.

2.6 In particular, clause 4.03 of the Primary Agreement was substituted by a new clause 4.03, which replaced the formula based monthly service charge with a fixed transportation charge of Rs. 38,67,600/- per month. The respondent contended that this fixed transportation charge was introduced to recover costs such as maintenance, operational expenses, and a minimum return on investment.

2.7 Additionally, clause 12 of the Primary Agreement was amended, specifying that the appellant had a period of 14 days from the receipt of the gas supply invoice (including the price, transportation charges, service charges and any additional charges) to raise any discrepancies or disputes with the invoice. Failure to raise such a dispute within this period was to be deemed a waiver of the right to raise claims or refer the matter to arbitration. FAO(OS)(COMM) 4/2024

2.8 Thereafter, as the events unfolded, to accommodate the appellant’s increasing requirement for gas to operate its sponge iron plant, a tripartite agreement was also executed between the respondent, the appellant, and M/s Kalyani Mukund Limited on 21.12.1999. This agreement resulted in the allocation of an additional 0.75 MMSCMD of gas to the appellant, which was previously allocated to M/s Kalyani Mukund Limited. As a result, the total gas allocation for the appellant was increased from 1.00 MMSCMD to 1.75 MMSCMD.

2.9 The primary dispute arose when the respondent allegedly failed to supply the committed quantity of gas to the appellant under both the Primary and Supplementary Agreement. The respondent attributed this failure to supply to government control over gas allocation, with the supply being constrained due to scarcity.

2.10 The appellant raised concerns over the respondent’s invoicing practices. According to the appellant, respondent’s issuance of invoices for fixed transportation charges was wrongly calculated and wrongly issued under both the contracts, despite the fact that the gas was only being supplied under the Primary Agreement and not under the tripartite agreement. The appellant argued that the respondent was wrongfully calculating and raising invoices for transportation charges that were not due.

2.11 Thereafter, according to appellant to resolve the issue, appellant made several attempts to resolve the issues through communications with the respondent, including raising formal grievances and disputing FAO(OS)(COMM) 4/2024 the transportation charges and failure to supply the contracted quantity of gas. However, the respondent did not respond satisfactorily to these complaints.

2.12 Due to the ongoing disputes and the respondent’s failure to resolve the issues, the appellant invoked arbitration as per the dispute resolution mechanism stipulated in the agreements between the parties.

2.13 Being aggrieved, the arbitration proceedings were initiated, and an arbitral tribunal was constituted to adjudicate the disputes between the parties. Proceedings before the arbitral tribunal

#3. Statement of claim

3.1 The appellant, in the proceedings before the arbitral tribunal, presented its claim based on a series of contentions and legal arguments which are set out in detail below.

3.2 The appellant contended that, while entering into the contract dated 10.09.1991, the respondent, by virtue of its monopoly status as a state-owned gas transmission company, took unfair advantage of its dominant position. The appellant claimed that the respondent coerced the appellant into agreeing to pay a fixed transportation charge, purportedly to recover the respondent’s investments in laying the pipeline and for the maintenance thereof. FAO(OS)(COMM) 4/2024

3.3 Thereafter, the appellant was persuaded to enter into a tripartite agreement with the respondent and M/s Kalyani Mukund Limited on

21.12.1999, wherein the appellant was induced to pay additional fixed transportation charges on the false assurance of receiving an additional

0.75 million standard cubic meters of gas per day. However, the respondent failed to fulfil this commitment, leading to a material breach of the agreement by the respondent. As a result, the appellant argued that this constituted a fundamental breach of contract, as the promised supply was not provided, and the fixed transportation charges were retained despite the failure to supply the agreed gas.

3.4 The appellant contended that the payment of fixed transportation charges was contingent upon the respondent fulfilling its commitment to supply the full contracted quantity of natural gas each day. According to the appellant, the respondent’s failure to supply the requisite quantity of gas, as specified in the contracts, extinguished the respondent’s entitlement to retain the transportation charges.

3.5 Further, the appellant asserted that the respondent’s supply was not only deficient in quantity but also failed to meet the agreed upon specifications. The short supply and failure to meet specifications resulted in severe operational consequences for the appellant, including substantial production losses and a significant loss of profit.

3.6 Moreover, the appellant claimed that the financial prejudice suffered was compounded by the fact that the appellant has made significant expansion investments in reliance on the respondent’s FAO(OS)(COMM) 4/2024 assurances of a continuous and adequate supply of gas. These investments, which were made to scale up operations based on the expectation of the promised gas supply, were rendered unproductive due to the respondent’s failure to deliver as contracted.

3.7 Accordingly, the appellant sought the following specific reliefs before the arbitral tribunal, (i) Supply of the shortfall quantity of gas or, alternatively, a refund of proportionate transportation charges; (ii) Compensation for loss of profit for Rs. 701 crores; (iii) Compensation for loss of use of money for Rs. 55 crores or interest at 20%; (iv) Compensation for failed expansion for Rs. 40 crores along with interest at 20%; (v) Reduction or refund of transportation charges, and (vi) Costs of arbitration.

#4. Statement of defence

4.1 The Respondent’s first line of defence was that the appellant’s claims were barred by the statute of limitations and, in any event, were not suitable for resolution through arbitration.

4.2 The Respondent contended that, even accepting the appellant’s case on its face, the gas supply commenced in 1994, and the contract was executed on 10.09.1991. However, the appellant raised the dispute regarding the excess transportation charges only in 2000, well beyond the three-year limitation period. The respondent argued that any claims for monetary relief that predates three years before the commencement of the arbitration proceedings are barred by limitation, and therefore, FAO(OS)(COMM) 4/2024 the arbitral tribunal should refuse to entertain claims relating to periods prior to the expiration of this three-year period.

4.3 The respondent further asserted that the claims relating to the period before 1998 were invalid because the 1998 agreement replaced or superseded the earlier contractual framework of 1991. Therefore, claims relating to the pre-1998 period, should be deemed waived and non-arbitrable.

4.4 The Respondent argued that the appellant had voluntarily agreed to the modified contract terms under the 1998 agreement, which included the new fixed transportation charges. The 1998 agreement marked a conscious shift from a variable transportation charge structure, as provided under the 1991 contract, to a fixed transportation charge. This shift was not an “excess” charge but was explicitly agreed upon by both parties as part of the renegotiated contractual terms.

4.5 The respondent emphasized that the appellant, entered into the 1998 agreement with full awareness of the gas supply situation and the regulatory environment. The appellant, therefore, could not later claim that the fixed transportation charges were unfair or excessive simply because the supply situation or commercial outcomes were not as expected.

4.6 The respondent contended that it did not breach the contract by failing to meet the full gas supply commitments because the supply was subject to government control and regulations. The gas supply was FAO(OS)(COMM) 4/2024 regulated by the Gas Linkage Committee and was subject to governmental directions. Due to the scarcity based allocation system, the respondent had limited control over the quantity of gas that could be supplied to the appellant. The Respondent argued that, given the regulatory control and scarcity of gas, the appellant’s claims for non- supply were based on an incorrect understanding of the contract. The respondent emphasized that such contracts in the gas sector are subject to government regulations and cannot be treated like ordinary commercial contracts that are negotiated freely without such constraints.

4.7 The respondent in response to the breach of contract allegations, stated that, despite the constraints on supply, the appellant was consistently supplied with 80% of the contracted quantity of gas, which was a significant proportion of the total agreed upon supply and consistent with the government’s allocation orders. Therefore, the respondent could not be held liable for a breach on the alleged shortfall in supply when the constraints were beyond its control.

4.8 The respondent further defended the fixed transportation charges, claiming that the pipeline network incur substantial fixed costs, including capital investment, the cost of terminals, meters, safety systems, telecommunications, monitoring, and ongoing operations and maintenance costs. These costs must be covered by the transportation charges, irrespective of the quantity of gas actually supplied. The respondent argued that the fixed transportation charges are widely recognized in the industry as a standard method to recover the costs of FAO(OS)(COMM) 4/2024 infrastructure and sustain maintenance and expansion. The appellant’s argument that the charges were “excess” was unfounded, as the charges were based on the actual costs associated with providing the necessary infrastructure, which are incurred regardless of gas throughput.

4.9 The Respondent denied that the gas supply obligations under the contract were absolute and argued that the supply was always contingent on factors beyond their control, such as gas availability and governmental directives. The supply was thus always conditional and could not be viewed as an absolute obligation that the respondent was required to fulfil regardless of the circumstances.

4.10 The Respondent further argued that the appellant was fully aware when entering into the initial agreement in 1991 and the modified arrangement in 1998 that the gas supply would be subject to availability constraints and government regulations. Therefore, the appellant could not later claim damages based on the assumption that the respondent was obligated to supply a minimum quantity of gas, unaffected by the government’s allocation policies or gas scarcity issues.

#5. Framing of issues

5.1 In light of the factual matrix, legal arguments, and submissions of both parties, the tribunal framed the following issues for adjudication: “1. Are the Claims or any part of them not arbitrable? FAO(OS)(COMM) 4/2024

#2. Whether Respondent was justified in not supplying contracted quantity of the gas to the Claimant? If no, to what effect?

#3. Does the Respondent prove that under the terms of the contract, the extent of supply to the Claimant of gas was dependent upon the availability of gas at the material time as well as upon direction of Government of India at that point of time?

#4. Is the Respondent entitled to claim transportation charges from the claimant even during the period of short supply or no supply whatsoever?

#5. Does the Respondent prove that the Claimant raised the objection in regard to transportation charges from the first time in the year 2000? If yes, what is the effect?

#6. Does the Respondent prove that on the execution of the supply agreement dated 30.03.1998, all the claims prior thereto stood extinguished?

#7. It is shown that the Claims for transportation charges pertaining to a period more than 3 years prior to date of the commencement of arbitration i.e. 7.1.2003, is not arbitrable as barred by limitation?

#8. Does the claimant prove that in view of the continuous and uninterrupted process of issuing provisional invoices, the limitation does not run against the Claimant until those invoices are reconciled and made final?

#9. Does the Claimant prove that the Respondent was wrong in levying and recovering transportation Charges post-tri-partite agreement for the same infrastructure against the same party under two different agreements?

#10. Whether the Respondent continuously made false assurances of supplying the contracted quantity of gas so as to induce the Claimant to continue to pay transportation charges?

#11. Does the Respondent prove that the Claimant is stopped from complaining about the levy of transportation charges because throughout the contract period and even upto date and even post tri- partite agreement, right upto 2000, they never disputed charges recovered / levied by the Respondent?

#12. Are the Claimant entitled to claim refund of corporate income tax as per clause 4.03 of Contract? FAO(OS)(COMM) 4/2024

#13. Are the Claimants entitled to interest? If so, from what date and on what amount and at what rate?

#14. Are the claimants entitled to all or any of the reliefs sought under the Claim- Statement?

#15. What order as to costs?

#16. What Award?”

#6. Arbitral award

6.1 On issue no.2 and 3, the tribunal concluded that the shortfall in the supply of gas was not a breach of contract by the respondent. Instead the shortfall was caused by the non-availability of gas after supplies were first made to priority sectors as per the recommendation made by the Gas Linkage Committee (GLC). This non-availability was a direct result of governmental regulations and the allocation framework, and the respondent was unable to supply the full contracted quantity due to scarcity and governmental control over gas distribution.

6.2 The tribunal further noted that the Central Government holds the power to allocate gas to priority sectors under its policy, and this takes precedence over the contractual terms related to gas supply. The tribunal held that Articles 5.01 to 5.03 of the Gas Supply Agreement dated 10.09.1991 and relevant provisions of the Supplementary Agreement dated 30.03.1998 had to be interpreted in a manner that was consistent with the gas utilization policy enforced by the government. The tribunal specifically relied on the judgment of the Supreme Court FAO(OS)(COMM) 4/2024 in Reliance Natural Resources Ltd. v. Reliance Industries Ltd.2 to establish that the government’s allocation decisions override any conflicting contractual provisions, even when it results in a reduction of the contracted gas supply.

6.3 The tribunal held that the short supply of gas, even if it could be construed as a breach of contract, should be treated as a force majeure even due to the government’s regulatory orders. This was seen as an external factor that disrupted the supply of gas and therefore absolved the respondent from liability for failing to meet the contractual supply targets.

6.4 On issue no. 4 and 5, the tribunal did not accept the appellant’s argument that force majeure automatically suspends its obligation to pay the fixed transportation charges. The tribunal also rejected the appellant’s claim for a proportionate reduction of transportation charges based on the principle of “part performance” under section 12(2), Specific Relief Act, 1963.

6.5 The tribunal reasoned that while a shortfall in supply could ordinarily constitute a breach of contract under Article 5.01 of the GSA, when the shortfall occurs due to a force majeure event, it is not considered a breach at all. As a result, the tribunal held that the failure to supply gas due to governmental regulations did not create a right for the appellant to suspend payment of full transportation charges. The 2 (2010) 7 SCC 1 FAO(OS)(COMM) 4/2024 fixed transportation charge remained due regardless of the shortfall, unless the terms explicitly provided otherwise.

6.6 The tribunal dismissed the appellant’s reliance on Section 12(2) and (3) of the Specific Relief Act, 1963. The tribunal found that, (i) the unperformed part of the contract was not significant enough to justify a claim for reduction of the fixed charges, as the respondent had been able to supply gas at approximately 80% of the contracted quantity, and (ii) even if Section 12(3) could apply, it would require the appellant to relinquish claims for the remaining performance and compensation. Since the appellant continued to seek damages for the shortfall, it could not invoke the provisions of the Specific Relief Act to claim a proportionate reduction in transportation charges.

6.7 Having rejected the claims based on legal grounds, the tribunal turned to a more commercially sensible interpretation of the contract, invoking the principle of business efficacy (Article 4.03). The tribunal observed that the fixed monthly transportation charge of Rs. 38,67,600/- was meant to cover the facilities available for the supply of gas up to the maximum capacity specified in Article 5.01 of the GSA. However, in light of the force majeure event, the tribunal found that it would be commercially unfair to charge the full amount when the supply was drastically reduced.

6.8 Thus, the arbitral tribunal held that that according to the principle of business efficacy, contracts should be interpreted in a manner that aligns with the commercial purpose they were meant to achieve. The FAO(OS)(COMM) 4/2024 tribunal thus ruled that the fixed transportation charges should be proportionately reduced on a month-by-month basis to reflect the actual quantity of gas supplied. According to tribunal, this interpretation was consistent with the commercial realities of the situation and ensured that the respondent was not unjustly enriched at the expense of the appellant.

6.9 In addition to the contractual interpretation, the tribunal applied the principle of “partial failure of consideration”, which is recognized under Indian law as a basis for adjustment of payments when a service or performance is not fully delivered. This principle allows for apportionment where part of the contracted service is not rendered. In this case, since the transportation service corresponding to the shortfall in gas supply was not performed in full, the tribunal ruled that restitution or adjustment of the charges was warranted.

6.10 Thus, the respondent submitted detailed records of the total supplies from June 1994 to January 2003, showing that the total gas supply during this period amounted to 2,450.01 MMSCM. The appellant calculated the month-wise transportation charges based on the actual quantity of gas supplied and found that the fixed monthly transportation charge should be proportionally reduced for each month. This reduction resulted in a refund amount of Rs. 14.67 crores.

6.11 Consequently, on issue no.4, the tribunal upheld the appellant’s calculation and agreed that Rs. 14.67 crores represented the excess transportation charges that should be refunded. This refund amount was directly linked to the shortfall in the gas supply. The tribunal justified FAO(OS)(COMM) 4/2024 this decision both through a commercially sensible interpretation of the contract and, alternatively, by applying the principle of partial failure of consideration. The tribunal found that it would be unjust to allow the full transportation charges to be paid when the full service was not rendered due to the force majeure event.

6.12 On issue no.5, the tribunal concluded that the appellant was not estopped from claiming a proportionate reduction in transportation costs, even though the issue had been raised in the year 2000. The tribunal held that the appellant was entitled to claim a refund of Rs.

14.67 crores for the period from June 1994 to January 2003. This was based on a proper computation that reflected the shortfall in the gas supply. The tribunal affirmed that the appellant’s right to claim this refund was not barred by any time limitation, as the contractual terms and the principles of Indian law provided a valid basis for the claim.

6.13 On issue no. 6, the tribunal rejected the respondent’s argument that all prior claims under the 1991 agreement were waived or extinguished upon the execution of the 1998 supplementary agreement. The respondent had described the 1998 agreement as an amendment to the 1991 agreement, rather than a separate, independent contract. Based on this, the tribunal held that the 1998 agreement did not extinguish the appellant’s claims arising under the earlier contract, as the 1998 agreement was merely a modification of certain terms and not a complete substitution of the 1991 contract. FAO(OS)(COMM) 4/2024

6.14 On Issues 7 and 8, the tribunal addressed the respondent’s objection that the appellant’s claims for transportation charge refunds were bared by limitation, particularly those claims pertaining to period prior to three years before the initiation of arbitration, i.e., before 07.

01.2003. The respondent argued that the invoices became final after 45 days, and any claim for refunds older than three years was time-barred and therefore not arbitrable.

6.15 The tribunal accepted the appellant’s explanation that the invoices raised throughout the contract period were provisional and that the accounts had not been fully reconciled or finalized. The tribunal noted that there was no evidence to suggest that these invoices were later finalised. Even the respondent’s witness did not deny that the invoices remained provisional.

6.16 The tribunal held that since the invoices were provisional and never finalized, the limitation period for the appellant’s claims did not commence. The tribunal did not accept the respondent’s argument that the invoices should have become final within 45 days or by the end of the financial year. Therefore, the tribunal ruled that the claim of Rs.

14.67 crores was not barred by limitation.

6.17 Therefore, under Issue 7, the tribunal held that the appellant’s refund claim of Rs. 14.67 crores was not barred by limitation and was arbitrable. The claim was timely, as the limitation period has not yet begun, given the pending reconciliation of the provisional invoices. Under Issue 8, the tribunal held that the limitation period would FAO(OS)(COMM) 4/2024 commence once the provisional invoices were reconciled and made final. Since this had not occurred, the claim was within the permissible time frame.

6.18 On Issue 11, the tribunal considered whether the appellant was estopped from challenging the transportation charges because it had not objected to them during the contract period or up to 29.12.2000.

6.19 The tribunal held that mere failure to object earlier or until

29.12.2000, did not create estoppel, especially since the tribunal had already determined that the claims were not barred by limitation. The tribunal also held that the 14-day dispute mechanism did not automatically impose estoppel if not invoked. Additionally, the refund of Rs. 4.22 crores after the 1998 revision did not preclude the appellant from claiming other amounts due and accepting payments or revisions without protest did not bar a lawful claim. Therefore, the tribunal ruled that the appellant was not estopped from seeking refund of proportionate transportation charges.

6.20 At last, the tribunal awarded Rs. 14.67 crores to the appellant as a refund for proportionate transportation charges, based on a commercial interpretation of the contract and the principle of partial failure of consideration. The tribunal held that fixed transportation charges should be reduced in line with the shortfall in supply due to force majeure. FAO(OS)(COMM) 4/2024

6.21 The tribunal awarded interest at 6% per annum from 29.12.2000, exercising discretion under Section 31(7) of the Arbitration and Conciliation Act, 1996, as the contract did not specify interest. This decision compensated the appellant for the delayed payment of the refund.

#7. Impugned Judgment

7.1 Aggrieved by the arbitral award, the respondent filed a petition under Section 34 petition of the Arbitration and Conciliation Act, 1996 before this court, seeking to set aside the award passed by the Arbitral Tribunal.

7.2 Section 34 of the Act provides the mechanism for setting aside an arbitral award in specific grounds, including when the award is in conflict with the public policy of India. In this case, the learned Single Judge of this court considered the section 34 petition and ultimately set aside the arbitral award. The reasons and findings for this decision are delineated below:

7.3 The learned Single Judge first considered the respondent’s challenge to the arbitral tribunal’s decision to reduce the fixed transportation charges on a pro-rata basis, as well as the tribunal’s reliance on the business efficacy principle and the partial failure of consideration. The respondent argued that under the 1991 Agreement and the 1998 Supplementary Agreement, the transportation charges were fixed and not contingent on the quantity of gas supplied. As such, FAO(OS)(COMM) 4/2024 they contended that reducing the transportation charges to a pro-rata basis was legally flawed.

7.4 The respondent argued that the arbitral tribunal’s reliance on business efficacy was legally erroneous and inconsistent with its own force majeure findings. The tribunal had essentially found that the failure to supply gas was due to force majeure, but simultaneously applied partial failure of consideration to reduce the transportation charges. The respondent argued that this created a contradiction, as force majeure and partial failure of consideration should not co-exist in the manner applied by the tribunal.

7.5 While the learned Single Judge acknowledged the respondent’s argument that the transportation charges were fixed and not linked to supply levels, the learned single Judge also noted that contractual interpretation was within the domain of the arbitral tribunal. The learned Single Judge observed that the tribunal’s interpretation, although contentious, was a plausible and reasonable construction of the contract. Since the tribunal’s view was within the ambit of reasonable interpretation, the learned Single Judge declined to reappraise the merits of the interpretation. In other words, the learned single Judge refused to interfere with the arbitral award on the grounds of merits-based reconsideration.

7.6 The learned Single Judge refrained from engaging in a merits- based review, reiterating that the role of the court under Section 34 is not to substitute its own interpretation for that of the arbitrator and FAO(OS)(COMM) 4/2024 contractual interpretation remains a matter for the arbitral tribunal as long as the tribunal’s interpretation was within the reasonable bounds of contract law, the court would not interfere.

7.7 On Issue No. 5,7,8, and 11, the learned Single Judge focused on the amended Clause/Article 12.03 of the Supplementary Agreement dated 30.03.1998. The amended clause specifically outlined the consequences of failing to lodge a claim within 14 days of receiving invoices for transportation charges. It was clearly stated that failure to do so would constitute an absolute waiver of the claim and the right to refer the matter to arbitration.

7.8 The learned Single Judge highlighted that the failure of the appellant to raise any claim within the prescribed 14-day period under Article 12.03 was a crucial aspect that had to be considered. However, the arbitral tribunal had not taken this into account, ignoring the clear stipulation in the agreement. As a result, the learned Single Judge concluded that the tribunal’s failure to consider waiver meant that it had overlooked a critical issue affecting the jurisdiction of the tribunal itself.

7.9 The learned single judge found that the issue of waiver and the jurisdiction of the tribunal were not addressed by the arbitral tribunal, despite the fact that Article 12.03 of the contract was central to the dispute. The failure of the tribunal to even address this provision was found to be a serious oversight. FAO(OS)(COMM) 4/2024

7.10 The learned Single Judge recorded that the framework of Article

12.03, which governs the dispute resolution process and time limits for raising claims, had been ignored by the tribunal. The tribunal’s reasoning that the invoices were provisional and therefore did not trigger the limitation period was criticized. The learned Single Judge held that even if the invoices were provisional, this did not extend the time indefinitely for raising claims.

7.11 The learned Single Judge further rejected the tribunal’s conclusion that the invoices being provisional prevented the limitation period from running. The learned Single Judge ruled that if the invoices were indeed provisional, they cannot be open-ended, and the appellant should have raised disputes within a reasonable time. The failure to do so was deemed a violation of the 14-day limitation period set out in the contract, which would bar the claims under Section 34 of the Limitation Act, 1963.

7.12 Additionally, the learned Single Judge pointed out that the appellant’s primary claim was for loss of profit due to the wrongful levy of transportation charges. However, the tribunal had treated the claim as one for a partial refund of transportation charges, awarding Rs. 14.67 crores based on that assumption. The learned Single Judge found that this was a discrepancy, as the appellant had never formally sought a refund of transportation charges in its Statement of Claim.

7.13 The learned Single Judge further emphasized that the award granted by the tribunal did not align with the appellant’s pleaded case. FAO(OS)(COMM) 4/2024 The claim for loss of profit was distinct from a claim for partial refund of transportation charges, yet the tribunal awarded the latter despite the fact that the appellant had abandoned any claim related to the 1999 Tripartite Agreement, and consequently, this issue was formally framed as Issue No. 9.

7.14 The learned Single Judge noted that the appellant’s primary grievance was related to the transportation charges under the 1999 Tripartite Agreement. However, during the arbitration, the appellant itself clarified that disputes under the Tripartite Agreement were not part of the reference. Despite this, the tribunal proceeded to award a refund based on the 1991 and 1998 agreements, which the learned Single Judge found to be inconsistent with the appellant’s pleaded case and the issue framing.

7.15 The learned Single Judge noted that the tribunal had awarded relief under contracts other than those originally pleaded by the appellant. This was deemed an error, as it departed from the actual dispute and the issues framed during arbitration.

7.16 The learned Single Judge concluded that the arbitral award was legally flawed and inconsistent with the contractual stipulations, particularly with respect to the issue of waiver under Article 12.03 and the claims raised by the appellant. The failure to properly consider these critical issues, along with the error in awarding a refund based on a different contractual framework, led the learned Single Judge to set aside the arbitral award. FAO(OS)(COMM) 4/2024

7.17 As a result of the aforementioned findings, the learned Single Judge allowed the Section 34 petition filed by the respondent and set aside the arbitral award. Proceedings before us

#8. Rival submissions

8.1 Mr. Sandeep Sethi, learned Senior Counsel for the appellant, argued that the learned Single Judge wrongly held that the appellant had waived its claim by failing to dispute the transportation invoices within the 14 day period prescribed under Article 12.03 of the Supplementary Agreement. It was submitted that the arbitral tribunal had considered and rejected the plea of waiver and estoppel under Issues 5, 6 and 11, referencing Article 12.03 in its award. The counsel argued that these factual findings by the tribunal were beyond interference by the court under Section 34 of the Act.

8.2 It was further argued that Article 12.03 itself was void under Section 28 of the Indian Contract Act, 1872, as it restricted and extinguished the rights of the appellant in an unjust manner. According to the appellant, waiver requires a positive act, not mere silence or payment of provisional invoices. The appellant maintained that Article

12.03 could not extinguish its rights to claim due to the lack of a clear and explicit waiver under Indian contract law principles. FAO(OS)(COMM) 4/2024

8.3 The learned Senior Counsel submitted that the impugned arbitral award had rendered its finding only after carefully considering and setting out the submissions from both sides. As such, the counsel argued that the award expresses a clear application of mind by the tribunal and was in conformity with section 31 (3) of the Act, which mandates that an arbitral award must state the reasons for its decision.

8.4 The appellant’s Senior Counsel submitted that the lack of detailed reasoning in the award should not be a ground for interference under Section 34. The counsel referred to precedents suggesting that minimal reasoning does not automatically justify setting aside an arbitral award under the Indian law framework.

8.5 It was further argued that the claims were within the prescribed period of limitation, emphasizing several grounds: i. The Agreement for supply of gas formally ended on

31.12.2000, although the actual supply continued till January

#2003. The appellant contended that it could only ascertain the total shortfall in gas supply after 31.12.2000, when the contract period formally concluded. Therefore, cause of action arose only after 31.12.2000, and the invocation of arbitration on 07.01.2003 was well within the three-year limitation period prescribed under Section 3 of the Limitation Act, 1963. ii. Even for the alternative claim for refund of proportionate transportation charges, limitation would begin at the earliest from

31.12.2000 when the contractual period ended. FAO(OS)(COMM) 4/2024 iii. The shortfall in gas supply occurred throughout the contract period, making it a continuing breach, which, according to the appellant, extends the limitation period. iv. The invoices were marked “provisional” by respondent, and there was no final reconciliation of accounts, meaning the claim could not properly arise until the final reconciliation took place. v. The arbitral tribunal accepted these arguments and held that the claim was within time. The learned counsel criticized the learned Single Judge’s reliance on the Reliance Industries case, asserting that it only upheld the tribunal’s findings on limitation and that waiver/estoppel were questions of fact, not of law. The Supreme Court had clarified that legal questions in the case remained open.

8.6 It was also urged that the representations of the appellant were considered by the Respondent only on 15.07.2002, after which mutual consultations or settlement discussions ended, and the cause of arbitration arose. According to the appellant, until that point, any claim would have been premature.

8.7 Lastly, the appellant’s counsel submitted that, even assuming the claims were partially barred, the Appellant would still be entitled to a sum of Rs. 8.5 Cr. (out of 14.67 Cr.) as a refund, and after calculating the interest accrued, the total amount would be Rs. 44.86 Cr. as of

10.01.2024. FAO(OS)(COMM) 4/2024

8.8 Per contra, Ms. Madhavi Divan, learned Senior Counsel for the respondent, submitted that the appellant could not now seek a refund of the fixed transportation charges under the 1991 contract. The respondent pointed out that when the 1991 Contract was amended in 1998, the appellant did not raise any concern about the fixed transportation charges despite knowing that the charges were not linked to the actual supply of gas. The 1998 Supplementary Agreement clearly stipulated the fixed transportation charges, which were agreed to by both parties.

8.9 Learned Senior Counsel for the respondent contended that the Tripartite issue had been settled, and the respondent had refunded Rs.

4.22 crores through a credit note for the transportation charges. The appellant accepted this refund without objection, and therefore, the claims before 30.03.1998 were settled and waived. The respondent argued that the appellant had agreed in 1998 to change the transportation charges to a fixed monthly amount of Rs. 38,67,600/-, fully aware that these charges were independent of the amount of gas supplied. The respondent submitted that any objections to the invoices should have been raised within 14 days, but the appellant did not do so, creating estoppel under the terms of the contract.

8.10 The respondent submitted that it had duly supplied the contracted quantity of gas under the 1991 Contract. According to the respondent, the appellant was not entitled to claim a refund of “fixed transportation charges” on the basis of short supply, as the contractual requirement was not breached. It was noted that Clause 5.02 of the 1991 Agreement FAO(OS)(COMM) 4/2024 specifically contemplated reduced supply and provided a formula for such situations. The respondent met the 80% supply threshold set in the contract, which was more than the minimum guaranteed supply required.

8.11 The respondent argued that under the amended Article 12.03 of the Supplementary Agreement, the appellant was required to raise objections to the invoices within 14 days and failing to do so meant that the appellant’s claim for refunds was barred by the limitation period under the contract. The respondent emphasized that the invoices were final once the 14-day period elapsed, and any objections raised later were inadmissible.

8.12 Lastly, the respondent highlighted that the arbitral tribunal itself had acknowledged that reduced supply was contractually envisaged under the 1991 Contract. As per Article 5.01, the fixed transportation charges were not linked to the actual quantity of gas supplied. Reduced supply was always contemplated, and the Tribunal’s attempt to order a pro-rata refund was inconsistent with the contractual terms. Moreover, the tribunal’s conclusion on force majeure as contradictory, as it simultaneously justified reduced supply due to external factors yet ordered a pro-rata refund of transportation charged. Reasoning and findings

#9. We have heard learned senior counsel and learned counsels who appeared before us at a considerable length and on various dates. The record has also been carefully perused in its entirety. FAO(OS)(COMM) 4/2024

#10. Scope of interference

10.1. In a challenge to an arbitral award, the most important starting point is to recognize the limited scope of judicial interference, as enshrined in Part-I of the Arbitration and Conciliation Act, 1996 (“the Act”). The framework of the Act, particularly Section 34, is premised on minimal intervention by courts to ensure that arbitration remains an effective and efficient alternative dispute resolution mechanism. It is essential to understand that judicial review of arbitral awards is not intended to serve as an appeal on the merits of the case. Rather, it is confined to a limited set of circumstances as prescribed by the Act.

10.2. To clarify the boundaries of judicial intervention, the Supreme Court has consistently emphasized, through a catena of decisions, the restrictive and narrow nature of interference under Section 34 of the Act. The Appellate Court under Section 37 is even more constrained than the Section 34 Court, as it is not authorized to conduct a merit based review of the award. However, to avoid prolixity, and keep the analysis concise, it is best to refer only a select few key authorities to understand the binding principles without overloading the discussion with excessive details.

10.3. The apex court in its decision of Jan De Nul Dredging India Pvt Ltd. versus Tuticorin Port trust 3, after taking into account the decisions in MMTC Limited vs. Vedanta Limited4, Konkan Railway 3 2026 INSC 34 4 (2019) 4 SCC 163 FAO(OS)(COMM) 4/2024 Corpn. Ltd. v. Chenab Bridge5, Punjab State Civil Supplies Corpn. Ltd. v. Sanman Rice Mills Project6, UHL UHL Power Company Limited vs. State of Himachal Pradesh7and Bombay Slum Redevelopment Corporation Private Limited vs. Samir Narain Bhojwani8 clearly stated that the appellate power under Section 37 of the Act is restricted to verifying whether the Section 34 court has exceeded its jurisdiction or failed to exercise its powers appropriately. The Supreme Court noted that appellate intervention should only occur if the Section 34 court has misapplied the scope of its jurisdiction or made an error in law. The relevant observation is as follows: That being the position, the award of the Arbitral Tribunal 30. was not liable to be disturbed under Section 34 of the Act and was rightly not disturbed. It is settled in law that the appellate powers under Section 37 are limited to the scope of Section 34 and cannot exceed beyond it. Certainly, therefore, if an award is not liable to be disturbed under Section 34 of the Act, the same could not have been interfered with in exercise of powers under Section 37 of the Act. In MMTC Limited vs. Vedanta Limited9, this Court has 31. very succinctly laid down the powers of Appellate Court under the Act. It held as under :- “14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court under Section 34 and