HPCL-MITTAL PIPELINE LIMITED v. COASTAL MARINE CONSTRUCTION AND ENGINEERING

Judgment

1. These three proceedings concern an arbitral award dated

14.01.2020, rendered by a majority of a three member Arbitral Tribunal, adjudicating disputes between the parties under Contract Agreement dated 17.07.2012. The dissenting arbitrator rendered a separate opinion on 17.02.2020. 2. HPCL-Mittal Pipelines Ltd. [hereinafter, “HMPL”] was the claimant in the arbitral proceedings and Coastal Marine Construction and Engineering Limited [hereinafter, “CMCEL”] was the counter claimant. 3. CMCEL has filed OMP(COMM) 200/2021, under Section 34 of the Arbitration and Conciliation Act, 1996 [hereinafter, “the Act”], challenging the majority award. HMPL has filed OMP(COMM) 538/020 for setting aside of the award, to the extent that interest has not been awarded on its claims. It has also filed OMP(ENF) 95/2021, under Section 36 of the Act, for enforcement of the same award. 4. As all three proceedings concern the same award, they have been taken up for hearing together. I have first heard learned counsel for the parties in O.M.P.(COMM) 200/2021, as the substantive challenges to the award have been advanced by CMCEL in the said petition. A. FACTS:

5. HMPL has laid a pipeline of 1024 km from Mundra Port, Gujarat to Bathinda, Punjab, where its sister concern has an oil refinery. 6. HMPL invited tenders for operation and maintenance of its SPM Signature Not Verified Signed By:UMANG KHANNA Signing Date:06.05.2025 14:59:52 O.M.P.(COMM) 538/2020 & Connected Matters [Single Point Mooring] terminal. It issued a letter of award in favour of CMCEL on 14.06.2012, and a contract agreement was signed on

16.07.2012, with an effective date of 14.06.2012. The agreement was for a period of two years. 7. Disputes arose with regard to performance, which led to show cause notices being issued by HMPL, and finally to termination of the contract on 21.11.2012. The work was subsequently awarded by HMPL to a third-party agency (Underwater Services Company Limited) on

22.11.2012. 8. As the disputes between HMPL and CMCEL could not be amicably resolved, arbitration proceedings were set in motion, under Clause 14.3 of General Conditions of Contract. Upon constitution of the Arbitral Tribunal, HMPL filed its Statement of Claim [“SOC”] and CMCEL made a counter-claim. 9. The claims raised by HMPL in the arbitral proceedings were as follows1:- Particulars Claim No. A) Demurrage Charges paid by the Claimant: (i) (ii) Losses incurred on account of demurrage, port charges, birth hire charges, pull back charges, pilot standby charges, etc. Losses incurred towards demurrage, port charges, birth hire charges, pull back charges, pilot stand by charges, etc. for the upcoming vessels. 1 As mentioned in paragraph 7.0 of the SOC. Amount Rs. 92,23,820 Rs. 2,40,72,483 Signature Not Verified Signed By:UMANG KHANNA Signing Date:06.05.2025 14:59:52 O.M.P.(COMM) 538/2020 & Connected Matters B) Expenses incurred towards replacement of floating hose strings: (i) (ii) Claim towards damages towards purchase and replacement of the 24“ mainline floating hose (Which was strings damaged by the MV Coastal Cheetah during Maintenance operations). Further, loss / damages incurred towards cost of accessories such as stud bolts and nuts, gaskets etc. used in the process of replacement of the floating hose. Rs. 29,32,620 Rs. 48,849 C) Expenses incurred towards replacement of west side sub-sea hose strings: (i) (ii) (iii) (iv) Claims towards/damages incurred by the Claimant towards the charges of the purchase and replacement of the sub-sea hose of west string (which became ruptured inspection/diving works). Rs. 33,66,190 Further Claims towards, loss/ damages incurred by the Claimant towards the costs incurred in accessories such as stud bolts and nuts, gaskets, etc. used in the process of replacement of the sub-sea hoses. Rs. 78,415 Costs incurred for the purpose of carrying out the replacement of the sub-sea hoses Rs. 24,75,540 Rs. 1,16,94,059 Claim towards loss/damages incurred by towards purchase and the Claimant replacement of the sub-sea hoses of the west string (which were damages by the MV Halani -2 during the replacement of one sub-sea hose on the intervening night of 26/27 October 2012 and also owing to Signature Not Verified Signed By:UMANG KHANNA Signing Date:06.05.2025 14:59:52 O.M.P.(COMM) 538/2020 & Connected Matters (v) (vi) its poor O&M activities). Further claim loss/damages towards, incurred by the claimant towards the costs incurred in accessories such as stud bolts and nuts, gaskets, etc. used in the process of replacement of the sub-sea hoses. Costs for the purpose of carrying out the replacement of the sub-sea hoses (which the Respondent), were damaged by supervision charges were paid to M/s SBMA. D) Other expenses incurred: Rs. 78,415 Rs. 43,50,224 (i) (ii) (iii) (iv) incurred by Cost/loss the Claimant towards hiring charges paid for DSV Dolphin 11 to Adani. Claim for loss/costs towards damage and replacement of two floating beads on the west side sub-sea hose string. Rs. 50,56,200 Rs. 5,38,190 Costs incurred by the Claimant for the replacement of one winker light. Rs. 50,000 Claim for additional costs incurred by the Claimant by awarding the O&M contract being M/S contractor Underwater Services limited. another Rs. 12,12,67,151 E) Refund of the ad hoc advance: (i) Amount paid towards the work being carried out by the Respondent Rs. 56,96,416.

10. CMCEL’s counter-claims were under the following heads2:

2 As mentioned in paragraphs 1 to 4 of the counter-claims. Signature Not Verified Signed By:UMANG KHANNA Signing Date:06.05.2025 14:59:52 O.M.P.(COMM) 538/2020 & Connected Matters Counter Claim No. 1.

4. Particulars Amount Claims arising out of wrongful termination of the contract by the Claimants Rs. 16,00,31,374 Outstanding invoices, that remain due and payable by the claimants Rs. 5,00,03,201 guarantee Performance which has been wrongly enchased Rs. 2,09,41,000 Interest on the abovementioned amounts @ 12% p.a.

11. In the impugned award, the majority has awarded Rs. 16,42,55,439 out of HMPL’S claim of approximately Rs.19 crores, and a sum of Rs. 4,16,64,625 out of CMCEL’S counter-claims of Rs. 23,09,75,575. Consequently, the net award has been made in favour of HMPL for Rs. 12,25,90,814 alongwith costs of Rs.1,30,35,000 towards the arbitration proceedings. B. SCOPE OF THE PRESENT JUDGMENT: NATURAL JUSTICE CHALLENGE – RELEVANT EXTRACTS OF THE MAJORITY AWARD: 12. CMCEL’s first ground of challenge is based upon an allegation of failure of natural justice, inasmuch as it is contended that the majority has failed to consider its statement of defence at all. At this stage, I have heard learned counsel for the parties only on this contention, and intend to dispose of this objection by the present judgment.

13. CMCEL’s argument is based upon paragraphs 11 and 12 of the majority award, and requires a detailed understanding of the approach taken in the majority award. That approach is reflected in two paragraphs Signature Not Verified Signed By:UMANG KHANNA Signing Date:06.05.2025 14:59:52 O.M.P.(COMM) 538/2020 & Connected Matters of the majority award, which are set out below3: “11. The Respondent COMACOE has filed a Statement of Defence (SOD). The Respondent has chosen not to give any para wise reply to the various paragraphs of the SOC in the SOD filed by it and the same is completely silent about the averments made therein. In order to get an idea, the very first page of the SOD (written as page 1406) is reproduced below: ANNEXURE (V) (A) (1) - DEMURRAGE CHARGES PAID BY THE CLAIMANT FOR M.T. LANTANA Annexure (V) (A) (1) (1) (1): This is the Respondent's reply to the claim for M.T. Lantana's demurrage charges, owing to slow discharge by M.T. Lantana caused by the failure of the West subsea hose string and hawser fouling. All the following arguments are in the alternate and without prejudice to each other. All the claims made are remote and not enforceable by the Claimant; the claimed losses are due to the Claimant's own fault. (2): The Respondents are not responsible for the failure of the West subsea hose string. This was damaged due to normal wear-and-tear, accompanied by design failure and high tidal variations. No causal breach has been alleged by the Claimants against the Respondent. (3): The Respondents had conducted underwater diving inspections of the West subsea hose string on 29th August 2012, and again on 26th September 2012 and found it to be in good order. ……………………………………………………………………… ………………………….………………… (8): ……………………………………………………………………… …………………………. In the end of the SOD at page 1456 there is a short Affidavit of Mr. Wyane Williams which is reproduced below: I Wayne Williams aged 38 years, residing at 3 In the majority award HMPL and CMCEL are referred to as “Claimant” and “Respondent” respectively. Signature Not Verified Signed By:UMANG KHANNA Signing Date:06.05.2025 14:59:52 O.M.P.(COMM) 538/2020 & Connected Matters ……………………………………………… …………..do hereby solemnly affirm and state as follows: I am fully conversant with the facts of 1. the present case and duly authorized to swear Respondents. this affidavit on behalf of

2. The contents of the Defence and /or the counter-claim are true and correct to my information as derived from the records of the case while the legal submission contained therein are based on advice from counsel.

3. The documents filed along with the accompanying Defense and/or the counter claim are true copies of the respective originals. Deponent It is very important to note that what has been written at page 1456, which has been described as Affidavit, has not been sworn before any Competent Authority, Oath Commissioner or Notary. The SOC is supported with an Affidavit of Mr. M.P. Singh, General Manager (Legal) of the Claimant and has been sworn before the Oath Commissioner of Delhi High Court which bears his signature and seal. Order VI Rule 15 CPC provides that every pleading shall be verified at the foot by the party or one of the party pleading. The person verifying shall specify, by reference to the numbered paragraphs of the pleading what he verifies of his own knowledge and what he verifies upon information received and believed to be true. Sub Rule (4) lays down that the person verifying the pleading shall also furnish an Affidavit in support of his pleadings.

12. In the first hearing of the Arbitral Tribunal held on 27.7.2015 the parties were given time for filing Statement of Claim, Statement of Defence and Rejoinder Statement. In the second hearing of the Tribunal held on 29.3.2016 it was pointed out to the learned counsel for the Respondent that there is no properly sworn Affidavit in support of SOD and counter claim. Learned counsel for the Respondent then made a request for granting time for filing the Affidavit. The relevant portion of the proceedings is reproduced below: Signature Not Verified Signed By:UMANG KHANNA Signing Date:06.05.2025 14:59:52 O.M.P.(COMM) 538/2020 & Connected Matters ……………………………………………………………… …………………………………………………… The respondent has sent the Statement of Defense and Counter Claim in a single compilation. Mr. Balaji Harish Iyer, learned counsel for Respondent has made a statement that the respondent will not file any other document. It was pointed out by the Tribunal that there is no properly sworn affidavit in support of the Statement of Defense and Counter Claim. Mr. Balaji Harish Iyer, learned counsel for respondent requested that four weeks time be granted to file an affidavit. The respondent is accordingly granted four weeks time to file an Affidavit in support of the Statement of Defense and Counter Claim. It will be open to the respondent to file a fresh Statement of Defense and Counter Claim. It is not the function of Arbitral Tribunal to give advice to a party how to draft and file the pleadings, but sufficient indication was given. Though liberty had been granted to the Respondent to file a fresh Statement of Defence and Counter Claim, yet the same was not done. The Respondent only filed a short Affidavit in support of the SOD already filed. Order 8 Rules 3, 4 and 5(i) of CPC are reproduced below:

3. Denial to be specific. - It shall not be sufficient for a defendant in his written statement of deny generally the grounds alleged by the plaintiff, but the defendant must deal specifically with each allegation of fact of which he does not admit the truth, except damages.

4. Evasive denial. - Where a defendant denies an allegation of fact in the plaint, he must not do so evasively, but answer the point of substance. Thus, if it is alleged that he received a certain sum of money, it shall not be sufficient to deny that he received that particular amount. but he must deny that he received that sum or any part thereof, or else set out how much he received. And if an allegation is made with diverse circumstances, it shall not be sufficient to deny it along with those circumstances.

5. - Specific denial. - [(1)] Every allegation of fact in the plaint, if not denied specifically or by necessary implication, or stated to be not admitted in the pleading Signature Not Verified Signed By:UMANG KHANNA Signing Date:06.05.2025 14:59:52 O.M.P.(COMM) 538/2020 & Connected Matters of the defendant, shall be taken to be admitted except as against a person under disability: Provided that the Court may in its discretion require any fact so admitted to be proved otherwise than by such admission. the various breaches committed by In view of the fact that the Respondent COMACOE has given no reply and has also not denied the various averments made in the Statement of Claim the same shall be taken to be admitted. Inspite of a clear order by the Tribunal on 29.3.2016 to the effect that it will be open to the Respondent to file a fresh Statement of Defence and Counter Claim, the Respondent has consciously chosen not to avail the opportunity to file a fresh SOD. Therefore, all the facts stated in the SOC regarding Respondent and also regarding failure to mobilize a contractually compliant Diving Support Vessel (DSV) and further that the vessel mobilized suffered from many shortcomings and did not meet the requirement of the Contract Agreement stand admitted by the Respondent. Likewise the fact that there was kinking in the West subsea hose which resulted in cracks and rupture was not noticed by the Respondent and on account there of only the East subsea hose could be used. The consequence there of was that the discharge rate of the crude oil from the tankers to SPM got considerably reduced and because of extra time incurred, the Claimant had to pay demurrage both to the tankers and also to the port authorities. There was hawser fouling at the time of berthing of MT Lantana which caused delay in berthing and incurring of demurrage. Besides above, damage was caused to new Subsea hose string which was being installed in the night of 26/27 October 2012 and again in the night of 31 October 2012 on account of anchor dragging of M.V. Halani - 2. The Claimant booked a DSV namely, Dolphin 11 after making payment of Rs. 50,56,200 /- to APSEZL as maintenance vessel for replacement of subsea hose string which had been damaged. All these facts stand admitted by the Respondent. The Tribunal is therefore, fully entitled to proceed on the basis that the facts stated in the SOC are correct.”4 SUBMISSIONS ON BEHALF OF PARTIES: C. 14. Mr. Sandeep Sethi, learned Senior Counsel for CMCEL, pointed out that the majority of the Arbitral Tribunal has proceeded on the basis 4 Emphasis supplied. Signature Not Verified Signed By:UMANG KHANNA Signing Date:06.05.2025 14:59:52 O.M.P.(COMM) 538/2020 & Connected Matters that, in the absence of a para-wise denial to the SOC in the SOD, the averments in the SOC could be taken to be admitted. On this basis that CMCEL failed to file another SOD and counter-claim despite opportunity, the majority has held that all the facts stated in the SOC regarding the breaches committed by CMCEL, “stand admitted” by it. Mr. Sethi submitted that this approach is unjustifiable, and is tantamount to allowing HMPL’s claims, virtually by default. He contended that no particular form of pleadings is prescribed by the Act, and none was agreed between the parties, or set by the Tribunal. While the SOD admittedly did not include a para-wise reply, Mr. Sethi urged that specific para-wise traverse of averments, as required in Order 8 Rule 5 of the Code of Civil Procedure, 1908 [hereinafter, “CPC”], is not required in arbitral proceedings at all, by virtue of Section 19 of the Act. He argued that no such requirement was clearly signified to the parties, so as to warrant such a drastic consequence. 15. Mr. Sethi submitted that CMCEL had, in fact, filed a substantive SOD, running into more than 40 single spaced pages. The SOD was in a claim-wise form. It dealt with the facts, and also provided the basis for contesting HMPL’s claim, both on liability and breach. He argued that this ought to have been considered by the Arbitral Tribunal. 16. Mr. Sethi contended that two further documents were filed by CMCEL at the stage of arguments, including a written submission dated

15.05.2018 and a note, providing paragraph references from the statement of defence, against each contention of HMPL. Mr. Sethi argued that these documents were intended to provide a comprehensive and readily useable Signature Not Verified Signed By:UMANG KHANNA Signing Date:06.05.2025 14:59:52 O.M.P.(COMM) 538/2020 & Connected Matters summary of the case advanced by CMCEL, with reference to the supporting pleadings. Learned Senior Counsel submitted that all these documents have been ignored by the majority in entirety. He argued that the majority award goes on to ignore CMCEL’s defence completely including the SOD, the oral evidence of its witness [who was cross examined by HMPL], as well as the oral and written submissions filed by it. 17. In fact, Mr. Sethi submitted that the approach ultimately taken by the majority– which became known to the parties only when the reserved award was pronounced – was inconsistent with several procedural steps taken during the course of the arbitration, including filing of an affidavit in support of the SOD, in terms of the Tribunal’s order dated 29.03.2016, filing of a pleading in response by HMPL, framing of issues, permission to amend the SOD, and other procedural orders of the Arbitral Tribunal. These are referred to in detail later in this judgment. 18. As far as the natural justice ground is concerned, Mr. Kartik Nayar, learned counsel for HMPL, first argued that, although the CPC does not strictly apply to arbitral proceedings, in the absence of any agreement as to the procedure to be adopted, the Arbitral Tribunal was free to set its own procedure, including by applying the provisions of the CPC. He submitted that Section 19(1) of the Act does not lead to a prohibition on application of CPC principles, as laid down in Srei Infrastructure Finance Limited v. Tuff Drilling5. In these circumstances, the Tribunal was free to invoke the principles of Order VIII Rule 4 and 5 of CPC. Mr. Nayar 5 (2018) 11 SCC 470, paragraphs 17 and 26 [hereinafter “Srei Infrasturcture Finance Limited”]. Signature Not Verified Signed By:UMANG KHANNA Signing Date:06.05.2025 14:59:52 O.M.P.(COMM) 538/2020 & Connected Matters contended that the requirement of specific denial, in the absence of which a pleading is taken to be admitted, has been emphasised in several judgments, including Badat & Co. Bombay v. East India Trading Co6, Shutham Electric v. Vaibhav Raheja7 and Thangam & Anr. v. Navamani Ammal8. 19. Factually, Mr. Nayar contended that the Arbitral Tribunal, in fact, cautioned CMCEL at the hearing on 29.03.2016, that the SOD as filed was deficient. CMCEL, however, did not remedy the defect, despite opportunity. The SOC contained detailed factual averments, which were not denied at all, and the SOD dealt only with the claims in seriatim. The written statement and chart relied upon by Mr. Sethi only came at the close of the arbitral proceedings. HMPL thus did not have an opportunity to understand the case which CMCEL sought to advance. Mr. Nayar also submitted that the majority award does, in fact, consider the substantive defences pleaded by CMCEL. 20. Without prejudice to this contention, Mr. Nayar urged that, if at all the award is found deficient in this respect, the hearing of this petition should be adjourned, to enable the Tribunal to cure the defect, under Section 34(4) of the Act. He contended that such a course was adopted by the Supreme Court in NHAI v. P. Nagaraju9. 21. In rejoinder, Mr. Sethi submitted that the procedure provided by Section 34(4) of the Act cannot be invoked in the present case, as the said provision only addresses a situation of a lacuna which can be filled