Mr. Arvind Chaudhary, Mr. Vinay Kumar Mr. Sachin Chaudhary, Advs v. XIAMEN LONGKING BULK MATERIAL SCIENCE ENGG. CO. LTD

Judgment

1. This is a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for brevity “the Act”) challenging the Arbitral Award dated 03.07.2020 passed by the learned arbitrator in the arbitration matter titled as “Xiamen Longking Bulk Material Science & Engg. Co. Ltd. v. Bharat Heavy Electricals Limited (BHEL)”. Digitally Signed By:DEEPANSHU MALASI Signing Date:21.08.2025 14:46:24 _______________________________________________________________________________________ O.M.P. (COMM) 529/2020 FACTUAL BACKGROUND

7. The brief facts of the case as per the petitioner are that the petitioner is a public sector undertaking and the respondent is a foreign company incorporated under the laws of the People’s Republic of China. On 17.07.2015, the petitioner floated a tender and the respondent participated in the same. As part of the bidding process, on 25.04.2016, the respondent had submitted a Project Execution Methodology (for brevity “the PEM”), in which the respondent assured the petitioner that it could supply the equipment and for local supplies, it stated it would either open an office in India or partner with an Indian firm to handle supply, erection and commissioning of the Mill Reject System (for brevity “the MRS”). The two salient conditions of Clause 1 of the PEM were that the respondent will set up a local office in India and open an Indian bank account to facilitate the execution of the contract. Based on the same, the petitioner issued three Letters of Award (for brevity “the LoA”) in favour of the respondent dated 01.12.2016. On 14.12.2016, the respondent sent its letter of acceptance to the LoA issued by the petitioner. Thereafter, on several occasions, the respondent failed to open a local office in India and did not furnish details of an Indian bank account or local tax registrations as proposed in the PEM. Instead, the respondent proposed that it can be permitted to use the office and the bank account of an associated Indian company, namely, M/s Longking Engineering India Pvt. Ltd. To which, the petitioner denied and insisted on strict adherence to the PEM.

8. The respondent insisted upon the petitioner to issue the Purchase Orders, however, the same could not have been issued until the Digitally Signed By:DEEPANSHU MALASI Signing Date:21.08.2025 14:46:24 _______________________________________________________________________________________ O.M.P. (COMM) 529/2020 respondent had opened its India office and an Indian bank account. This requirement existed because the Purchase Order must necessarily carry the local Indian address of the seller along with its bank details for remittance of payments, in accordance with the terms of the Purchase Order.

9. The respondent sent an e-mail dated 03.06.2017 stating that if it is not allowed to use the bank account of M/s Longking Engineering India Pvt. Ltd., then it cannot continue the execution of the contract. The said e-mail is reproduced as under: “Dear Gaurav, This is w.r.t. your mail dtd 2017/05/26 and here is our response. According to the previous email, we received the LOAs from BHEL dtd 2016/12/02. At the same time, we were negotiating with your company many times for the issue of receiving rupee. And then we proposed to use the account of M/s Longking Engineering India to receive rupee and issued a conditional acceptance of LOA (refer to the mail dtd 2016/12/14), but your company did not accept at that time. In the spirit of friendly cooperation with BHEL, we accepted the LOAs on December 27, 2016. When we visited BHEL-PSSR and BHEL-PEM in January and April 2017, your people verbally agreed that Xiamen Longking could sign a JV with Longking India, then the account of receiving rupee shall be the account of M/s Longking Engineering India Pvt. Ltd. And as you know, both Xiamen Longking and Longking India belong to the same parent company. Digitally Signed By:DEEPANSHU MALASI Signing Date:21.08.2025 14:46:24 _______________________________________________________________________________________ O.M.P. (COMM) 529/2020 However, after we prepared all the documents with Longking India, in the mail dtd 2017/05/26, you denied the JV with Longking India and informed that the PO & WO have to be issued in the name of M/s Xiamen Longking Bulk Materials Science and Engg. Co. Ltd. and all legal and financial registrations in the name of M/s Xiamen Longking Bulk Materials Science and Engg. Co. Ltd. only can be accepted. We have tried a lot of times on opening the bank account of Xiamen Longking but it is still not feasible. In a word, we hope BHEL will consider the actual situation of our company and agree us to use the account of M/s Longking Engineering India to receive rupee. Otherwise, we have no way to continue the execution of the project.”

10. On 17.07.2017, the petitioner issued a communication to the respondent invoking the “risk and cost” clause under the contract.

11. On 30.11.2017, the petitioner issued a letter to the respondent, stating that an amount of Rs. 2,12,47,107.40/- was recoverable on account of the risk and cost amount. The letter further stated: “This is to inform you that, since you have failed to honour and deliver as per the provisions of the contract referred to in the subject line, we have initiated procurement of the said material from an alternate source.”

12. On 14.12.2017, the respondent sent a letter questioning the cancellation of contract by the petitioner and thereafter, on 12.10.2018, the respondent invoked the arbitration clause of the General Conditions of Contract (for brevity “the GCC”), being Clause 32.1, which reads as under: “32. ARBITRATION Digitally Signed By:DEEPANSHU MALASI Signing Date:21.08.2025 14:46:24 _______________________________________________________________________________________ O.M.P. (COMM) 529/2020

32.1 In the event of any dispute or difference arising out of execution of order/ contract or the respective rights and

liabilities of the parties or in relation to interpretation of any provision by Seller/ Contractor in any manner touching upon order/ contract, such dispute or difference shall (except as to any matters, the decision of which is specifically provided for therein) be referred to the arbitration of the person appointed by the competent authority of Purchaser. Subject as aforesaid, the provisions of Arbitration and Conciliation Act, 1996 (India) or statutory modifications or reenactments thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceedings under this clause. The venue of arbitration shall be at New Delhi.”

13. The respondent raised the following claims before the learned arbitrator: S. No. i. ii. iii. iv. v. vi. Particulars/Claims Amount (In INR) Preparation of bid. Design and engineering cost. 26,95,000/- 29,75,000/- Cost of preparation of 65 drawings. 13,65,000/- Copyright fee. Travel expenses. Public management fee. 52,50,000/- 17,50,000/- 10,50,000/- vii. Loss of profit and overhead for 83,27,768/- unexecuted work of contract. viii. Pre suit pendente lite and future interest @ 18% p.a. on all claims. ix. Cost of Arbitration and Litigation 70,00,000/- Digitally Signed By:DEEPANSHU MALASI Signing Date:21.08.2025 14:46:24 _______________________________________________________________________________________ O.M.P. (COMM) 529/2020 TOTAL AMOUNT CLAIMED 3,04,12,768/-

14. The petitioner filed a counter-claim on account of risk and cost amount equivalent to Rs. 2,12,47,107.04/- and litigation cost of Rs. 35,00,000/-. Thus, the total amount claimed by the petitioner by way of its counter claims was Rs. 2,47,47,104.04/-.

15. On 03.07.2020, the learned arbitrator passed the impugned arbitral award, wherein the learned arbitrator directed payment of a sum of Rs. 13,65,000/- along with pendente lite and future interest @ 6% per annum with effect from 01.01.2019 till realisation, towards the cost of preparation of 65 drawings, including the cost of draftsman, printing and preparation charges.

16. The relevant paragraphs of the impugned arbitral award read as under: “100. I find that the claimant has considered it to be an opportunity to claim a huge amount from the respondent. However, all the same, it (the claimant) is entitled to claim the amount under clause (C). It is Rs. 13,65,000/(Rupees Thirteen Lakhs Sixty Five Thousand Only) being the cost of preparation of 65 drawings. It is a fact that the 65 drawings submitted by the claimant were neither returned nor rejected. The claimant is justified to claim this particular amount. …

119. The claimant is accordingly awarded interest @ 6% per annum on Rs. 13,65,000/- (Rupees Thirteen Lakhs Sixty Five Thousand Only) from 01.01.2019 till the payment is made.” 17. Aggrieved by the impugned arbitral award, the petitioner has filed the present petition. Digitally Signed By:DEEPANSHU MALASI Signing Date:21.08.2025 14:46:24 _______________________________________________________________________________________ O.M.P. (COMM) 529/2020 SUBMISSIONS ON BEHALF OF THE PETITIONER

18. Mr. Chaudhary, learned counsel for the petitioner, states that the impugned arbitral award is ex facie illegal, arbitrary and passed without the application of the judicial mind and is therefore liable to be set aside.

19. It is stated that the impugned arbitral award is against both the settled principles of law and the facts on record. The learned arbitrator, being a creature of the contract, could not travel beyond its express terms, yet has done so by giving an interpretation to the contract and the communications exchanged between the parties that is extraneous to the record. This renders the award irrational and perverse. 20. The specific instances of such deviation are as follows: A. B. C. D. The findings in paragraph 63 of the impugned arbitral award are contrary to the PEM. The conclusion that payment was to be made after execution of the contract is contrary to the contractual terms. The finding regarding the person representing the respondent, in paragraph 37 of the impugned arbitral award, is inconsistent with the documents placed on record, despite the said person having appeared as a witness. The learned arbitrator erred in holding that time was not the essence of the contract, in paragraphs 54 and 55 of the impugned arbitral award, despite the LoA, the GCC and the Special Conditions of Contract specifically stipulating otherwise.

21. Reliance is placed on the following judgments to submit that the learned arbitrator cannot render findings contrary to contractual terms: A. Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131; Digitally Signed By:DEEPANSHU MALASI Signing Date:21.08.2025 14:46:24 _______________________________________________________________________________________ O.M.P. (COMM) 529/2020 B. C. Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644; Shri Lal Mahal Ltd. v. Progetto Grano SpA, (2014) 2 SCC 433; D. Vijay Karia v. Prysmian Cavi E Sistemi SRL, (2020) 11 SCC 1.

22. It is further stated that the impugned arbitral award is against the public policy of India and suffers from violations of the principles of natural justice. In particular, the reliance by the learned arbitrator on the Note to Clause 9.6 of the GCC, in paragraphs 77 and 79 of the impugned arbitral award, is arbitrary, as the respondent never pleaded or argued that it sought payment through a Letter of Credit (for brevity “an LC”). The parties were given no opportunity to present arguments on this issue. Once the parties had agreed that the respondent would open an Indian bank account in compliance with the Reserve Bank of India (for brevity “the RBI”) guidelines, the matter was not open reinterpretation by the learned arbitrator.

23. The learned arbitrator failed to appreciate the contentions of the petitioner, the facts of the case and specific clauses of the contract, including the PEM agreed between the parties. Under the PEM, opening of a project office in India for execution of the Indian component, as per the RBI guidelines, was a pre-requisite. The Indian and foreign components of the contract were not severable, making this a mandatory condition for execution. The respondent itself had proposed to set up an Indian office and open an Indian bank account to receive Indian Rupee, instead of opting for an LC. The finding of the learned arbitrator that payment could have been made through an LC or that meetings could have been arranged via video conference is beyond Digitally Signed By:DEEPANSHU MALASI Signing Date:21.08.2025 14:46:24 _______________________________________________________________________________________ O.M.P. (COMM) 529/2020 the pleadings, arbitrary and whimsical, especially when such an argument was never raised by either party.

24. The learned arbitrator ignored the vital evidence of the incapacity of the respondent and refusal to fulfil its obligation to open a project office and an Indian bank account for receiving Indian Rupee (vide email and letter dated 23.01.2017). Instead, the respondent sought to use the bank account of a third party, M/s Longking Engineering India Pvt. Ltd., a complete stranger to the contract. At no stage was it agreed that payment could be made through an LC. It is impermissible in law to remit contractual payments to a third party unconnected with the contract.

25. The learned arbitrator failed to appreciate the evidence of the witness of the petitioner, who categorically stated that the details of the Indian office and bank account were required before issuance of the Purchase Order. This critical evidence was overlooked, resulting in an erroneous finding.

26. The learned arbitrator failed to appreciate that the contract stood repudiated by the email dated 03.06.2017 sent by the respondent, wherein it expressly refused to continue execution unless allowed to use the bank account of M/s Longking Engineering India Pvt. Ltd. for receipt of the Rupee component. Following this, the petitioner, by letter dated 17.07.2017, invoked the risk-and-cost clause and accepted the repudiation. The learned arbitrator ignored Section 39 of the Indian Contract Act, 1872 (for brevity “the ICA”), which entitles the promisee to terminate the contract upon such refusal or inability to perform. Reliance is placed on Ashling v. L.S. John, (1984) 1 SCC 205 and Jawahar Lal Wadhwa & Anr. v. Haripada Chakraborty, (1989) 1 SCC 76. Digitally Signed By:DEEPANSHU MALASI Signing Date:21.08.2025 14:46:24 _______________________________________________________________________________________ O.M.P. (COMM) 529/2020

27. Furthermore, the award of Rs. 13,65,000/- towards design and engineering costs is based on no evidence. The calculation was arbitrarily derived from total employee salaries for a certain period, on the assumption that the employees were exclusively engaged on this project. This assumption is irrational and unsupported. Out of 65 drawings submitted by the respondent, only 18 were approved by the petitioner. The contract required detailed engineering drawings to be approved and many initial submissions required significant revisions. Unapproved drawings, being of no utility to the petitioner, could not have formed the basis for any award.

28. In addition, in awarding pendente lite interest future interest, the learned arbitrator failed to consider Clause 9.11 of the GCC. The learned Arbitrator relied on Ambica Construction v. Union of India, (2017) 14 SCC 323, but ignored binding precedent prohibiting such