Calcutta High Court
Srmb Srijan Limited vs Great Eastern Energy Corporation … on 13 April, 2026
Author: Arijit Banerjee
Bench: Arijit Banerjee
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IN THE HIGH COURT AT CALCUTTA
COMMERCIAL APPELLATE DIVISION
ORIGINAL SIDE
BEFORE:
THE HON'BLE JUSTICE ARIJIT BANERJEE
AND
THE HON'BLE JUSTICE OM NARAYAN RAI
AO-COM 30 OF 2024
WITH
AP-COM 281 OF 2024
SRMB SRIJAN LIMITED
-VS-
GREAT EASTERN ENERGY CORPORATION LIMITED
For the Appellant : Mr. Jayanta Kr. Mitra, Sr. Adv.
Mr. Sakya Sen, Sr. Adv.
Mr. Arnab Das, Adv.
Mr. Rehanuddin Ansari, Adv.
For the Respondent : Mr. Ratnanko Banerji, Sr. Adv.
Mr. Sarvapriya Mukherjee, Adv.
Mr. Kanishk Kejriwal, Adv.
Mr. Debargha Basu, Adv.
Hearing Concluded on : 15.01.2026
Judgment on : 13.04.2026
Om Narayan Rai, J.:-
1. This is an appeal under Section 37 of the Arbitration and Conciliation Act, 1996
(hereafter "the 1996 Act") against a judgment and order dated September 05,
2024, passed by an Hon'ble Single Judge of this Court in AP-COM 281 of 2024
and the connected application being GA 2 of 2023 whereby the challenge thrown
to an award under Section 34 of the 1996 Act has been repelled.
FACTS OF THE CASE:
2. Briefly summed up, the facts of the case are as follows:-
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a. The appellant (hereafter "SRMB") and the respondent (hereafter "GEECL") had
entered into a Gas Sale and Purchase Agreement (hereafter "GSPA")
whereunder coal bed methane (hereafter "CBM gas") was to be sold by GEECL
to SRMB.
b. The agreement was executed on May 11, 2011 and was to continue for 25
years subject to revision of terms and conditions including price.
c. The said agreement set a maximum limit upto which CBM gas could be sold
by GEECL to SRMB. It also obliged SRMB to pay an amount to GEECL
equivalent to the price of a certain percentage of the contracted quantity
quarterly in terms of the following clause of the GSPA:-
"5.2 Subject to clause 8.3 & 9, in case the SELLER is ready and able to supply the
Contracted Quantity of GAS but BUYER purchases GAS less than the k% of the Contracted
Quantity or on account of stoppage of supply by the SELLER as prescribed under clause
4.2 results in purchase of Gas less than k%, then BUYER shall have to pay to the SELLER
for his quarterly minimum quantity (hereinafter termed as „Minimum- Guaranteed
Offtake i.e. MGO‟) of k% of contracted quantity. The MGO will be applicable after 45 days
from the commencement of supply of CBM gas, will be Known as „Reading Period‟. At the
end of Reading period, buyer may amend the Contracted quantity, based on the actual
consumption of CBM gas during such period. In case of stoppage or interruption or
reduction in gas supply from the SELLER's side as mentioned in clause 5.1, 8.0 and other
clauses, the Minimum Guaranteed Offtake will be reduced on pro-rata basis, considering
no. of days in a quarter when the supply to the BUYER was less than k% of the daily
quantity mentioned in 5.1 due to reduction or stoppage of supply the SELLER. For e.g. in a
quarter if the quantity of gas supplied to the BUYER is less than k% of daily requirement
mentioned in 5.1 for N days due to reduction or stoppage of supply by the SELLER,
Minimum Guaranteed Offtake for the quarter will be as under:
MGO = Daily Contracted Quantity x (no. of days in a Quarter- N) x k
Where:
k= 80%
No. of days in a quarter is 75 days
The BUYER undertakes to pay for such Minimum Guaranteed Offtake or for actual
quantity used during the quarter, whichever is higher."
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d. The aforequoted clause was termed as "Minimum Guaranteed Offtake" clause
(hereafter "MGO clause").
e. In order to secure payment in respect of the contracted quantity of CBM gas,
SRMB was required to furnish a revolving confirmed bank guarantee for the
amount of the contracted quantity of one month, which was to be kept alive.
f. Disputes and differences arose between the parties inter alia as regards the
MGO which ultimately led to the arbitration battle.
g. To state summarily, the dispute pertaining to the MGO clause was that SRMB
had written to GEECL on April 22, 2014 seeking waiver of the MGO clause.
GEECL wrote back on April 24, 2014, stating that SRMB's request would be
considered, as a special case, only if the price of CBM gas was increased by
Rs.5/- per SCM (Standard Cubic Metres) on the current price, which would
be applicable additionally over and above the price increase in future. SRMB
pressed for unconditional waiver. By a letter dated May 23, 2014, GEECL
suggested considering reduction of the MGO clause from 80% to 75% instead
of the condition proposed by SRMB. There was exchange of correspondences
between the parties and thereafter, believing that the MGO clause had been
waived, SRMB did not renew the bank guarantee. GEECL therefore
suspended the supply of CBM gas while putting SRMB on notice that the
stoppage was due to the non-renewal of the bank guarantee.
h. Ultimately, SRMB terminated the agreement on July 07, 2014 as supply of
CBM gas had been stopped.
i. Faced with that, GEECL invoked the arbitration clause in the agreement
whereupon, a three member Arbitral Tribunal was appointed to adjudicate
the disputes that had arisen between GEECL and SRMB.
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j. GEECL lodged its claim praying inter alia for the following reliefs:-
"a) An award for a sum of Rs.86,37,737.69 as pleaded in paragraph 48 above;
b) An Award .for a sum of Rs.21,08,661.54 on account of interest on overdue amount
as pleaded in paragraph 49 above;
c) An Award for a sum of Rs.8,52,47,240.40 on account of MGO for the period July
14, 2014 to December 31, 2014 as pleaded in paragraph 52 above.
d) An Award for a sum of Rs. 396,43,22,880/- on account of MGO quantity as
pleaded in paragraph 53 above.
e) Interest at the rate of 15% per annum upon the awarded sum as claimed in prayer
(d) above till actual realization thereof;
f) Interim interest and interest pendente-lite upon the awarded sum at the rate of 15%
per annum till realization thereof;
f) Alternatively, an enquiry into the loss and damages suffered by the claimant and
an award for such sum as may be found due upon such enquiry;
g) A declaration that the contract/agreement for Gas Sale and Purchase Agreement
dated May 11, 2011 is valid subsisting and binding upon the parties;
h) Declaration that the termination notice dated July 7, 2014 issued on behalf of the
respondent is illegal, null and void and is liable to be cancelled and/or declared void;
i) Declaration that the respondent has committed breach of the Gas Sale and
Purchase Agreement dated May 11, 2011 and accordingly is not entitled to claim or
deduct or adjust any amount from the sum claimed by the respondent from the claimant
in any manner whatsoever;
j) Permanent injunction restraining the respondent, its men, agents, servants and/or
assigns or howsoever from acting in any manner contrary to and/or inconsistent with
the Gas Sale and Purchase Agreement dated May 11, 2011;"
k. SRMB retorted with a counter claim asserting inter alia that the MGO clause
stood waived by modification of the original contract, SRMB had to furnish
bank guarantee in excess of what was required, SRMB had suffered huge loss
of profit due to non-switching over to hot billet charging system and that the
claimant GEECL had wrongfully encashed the bank guarantee furnished by
SRMB.
l. Evidence was led and witnesses were examined. The learned Arbitral Tribunal
ultimately passed an award on June 21, 2022, thereby partly allowing the
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claims of GEECL and rejecting the counter claim of SRMB in the following
words:-
"221) The Tribunal therefore awards:
(i) Declaration as prayed for by the Claimant in prayer G, H and I of SOC but specific
performance of the Contract is declined except permitting the Claimant to remove its
underground gas pipelines from the premises of the Respondent upon 7 days‟ clear
notice.
(ii) Counter-claim of the Respondent are not awarded and rejected.
(iii) The respondent is directed to pay the claimant the aforesaid amount of
Rs.58,50,45,169/- together with interest at the rate of 7% from February, 2015, till the
date of the Award, within a period of 12 weeks from the date of the Award.
(iv) In default of the payment of the aforesaid amount by the Respondent with
interest as stated in Clause III within the period mentioned therein, the Respondent will
have to pay the aforesaid amount of Rs.58,50,45,169/- + interest at the rate stated
above and additionally an interest of 9% on the total amount of principal + interest from
the date of default, till the date of actual payment.
222) In this matter none of the parties have argued for costs, nor any cost sheet has
been provided by either of the parties. This shows that the parties are not pressing for
cost. The delay in the conclusion of the proceeding is not attributable solely to the
parties and has been largely because of the intervention of the Covid situation.
Considering all these and using its discretion the Tribunal does not award any cost to
the successful party.
223) This is the Award."
3. Feeling aggrieved by the said award, SRMB approached this Court under
Section 34 of the 1996 Act. The application under Section 34 of the 1996 Act
has been dismissed by the order dated September 05, 2024. Hence the present
appeal.
SUBMISSIONS ON BEHALF OF THE APPELLANT:
4. Mr. Jayanta Kumar Mitra, learned Senior Advocate appearing for the appellant
has made the following submissions:-
i. The learned Arbitral Tribunal has ignored relevant evidence and has relied on
extraneous material.
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ii. In terms of Section 34(2)(b)(ii) of the 1996 Act, an arbitral award would be
open to challenge if it was in contravention with the fundamental policy of
Indian law.
iii. Paragraph 11 of the judgment of the Hon'ble Supreme Court in the case of
Bharat Cooking Coal Limited vs. L.K. Ahuja1 was cited to demonstrate the
scope of interference with arbitral awards. It was asserted that for an award
to remain unfazed on a challenge under Section 34 of the 1996 Act, it must
be shown that the arbitrator has applied his mind to the pleadings, the
evidence adduced before him and the terms of the contract. In the case at
hand, the learned Arbitral Tribunal has failed to appreciate relevant evidence
in the form of reports of CARE and CRISIL.
iv. Another judgment of the Hon'ble Supreme Court in the case of Associate
Builders vs. Delhi Development Authority2 was pressed into service to
assert that the said judgment distils several authoritative dicta of the Hon'ble
Supreme Court which define "fundamental policy of Indian Law" and list its
components. It was submitted that this judgment triggered the 2015
amendment to Section 34 of the 1996 Act whereby public policy of India
which finds mention in Section 34(2)(b)(ii) of the 1996 Act was explained.
v. Yet another judgment of the Hon'ble Supreme Court in the case of Batliboi
Environmental Engineers Limited vs. Hindustan Petroleum Corporation
Limited & Another3 was cited to assert that the expression "public policy" is
capable of both wide as well as narrow interpretation.
1 (2004) 5 SCC 109
2 (2015) 3 SCC 49
3 (2024) 2 SCC 375
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vi. The Hon'ble Supreme Court ruling in the case of Ssangyong Engineering &
Construction Company Limited vs. National Highways Authority of
India (NHAI)4, was relied on to demonstrate the brinks and boundaries of
public policy of India as also the scope of Section 34(2A) of the 1996 Act and
the contours of "patent illegality" in an arbitral award.
vii. The decision of the Hon'ble Apex Court in the case of Punjab State Civil
Supplies Corporation Limited & Another vs. Sanman Rice Mills &
Others5 was also relied on to demonstrate the scope of Section 34 of the 1996
Act.
viii. The learned Tribunal has passed the award completely ignoring the principle
of mitigation of damages as contemplated under Section 73 of the Indian
Contract Act, 1872 (hereafter "the 1872 Act").
ix. Relying on a passage on "Mitigation of Damage" from "Chitty on Contracts"6,
it was asserted that there are three rules under the comprehensive head of
mitigation i.e. (i) plaintiff cannot recover the loss consequent upon the
defendant's breach of contract, if the plaintiff could have avoided the loss by
taking reasonable steps; (ii) if the plaintiff avoids or mitigates the loss
consequent upon defendant's breach, he cannot recover the same and (iii)
where the plaintiff incurs loss or expense by taking reasonable steps to
mitigate the loss resulting from the defendant's breach, the plaintiff may
recover the further loss from the defendant. The relevant portion of "Chitty
on Contracts" (supra) is quoted hereinbelow:-
"Mitigation. There are three rules often referred to under the comprehensive heading
of "mitigation": they will be considered in turn. First, the plaintiff cannot recover for loss
4 (2019) 15 SCC 131
5 2024 SCC OnLine SC 2632
6 25th Edition; Volume - I
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consequent upon the defendant‟s breach of contract where the plaintiff could have
avoided the loss by taking reasonable steps. Secondly, if the plaintiff in fact avoids or
mitigates his loss consequent upon the defendant‟s breach, he cannot recover for such
avoided loss, even though the steps he took were more than could be reasonably
required of him under the first rule. Thirdly, where the plaintiff incurs loss or expense by
taking reasonable steps to mitigate the loss resulting from the defendant‟s breach, the
plaintiff may recover this further loss or expense from the defendant.
Avoidable loss. The first rule "imposes on a plaintiff the duty of taking all
reasonable steps to mitigate the loss consequent on the breach, and debars him from
claiming any part of the damage which is due to his neglect to take such steps."
The position of the plaintiff under this rule is similar to that of a plaintiff whose
damages are reduced because of his contributory negligence. The onus of proof is on the
defendant, who must show that the plaintiff ought, as a reasonable man, to have taken
certain steps to mitigate his loss. Any loss which is directly caused by a failure to fulfil
this duty is not recoverable from the defendant. Thus an employee who has been
wrongfully dismissed and unreasonably refuses to accept another equally remunerative
post to date from the dismissal is only entitled to nominal damage.
The plaintiff is not "under any obligation to do anything other than in the ordinary
course of business"; the standard is not a high one, since the defendant is a wrongdoer.
"The law is satisfied if the party placed in a difficult situation by reason of the breach of
a duty owed to his has acted reasonably in the adoption of remedial measures, and he
will not be held disentitled to recover the cost of such measures merely because the
party in breach can suggest that other measures less burdensome to him might have
been taken." The plaintiff has a reasonable time after the breach (the length of time
depending on all the circumstances) before his duty to mitigate arises. Questions about
the reasonableness of the plaintiff‟s steps to mitigate his loss have arisen in cases
(discussed elsewhere) where the defendant has failed to complete the contractual work
(e.g. building or repair work) and the plaintiff claims damages for the cost of substitute
performances by a third party.
But the plaintiff is under no duty to take risks with his money in attempting to
mitigate, nor to take a step which might endanger his own commercial reputation, e.g.
by enforcing sub-contracts. The plaintiff is under no duty, even under an indemnity, to
embark on a complicated and difficult piece of litigation against a third party, nor is the
plaintiff required to sacrifice any of his property or rights in order to mitigate the loss. It
has been suggested that the plaintiff‟s duty to mitigate does not require him to guard
against the effects of inflation per se, i.e. it does not apply to the risk of pure price
increases which may lead to "inflationary increases in damages" after the date of the
breach of contract.
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Sale of goods. In contracts for the sale of goods, the normal rule for the measure of
damages assumes that the innocent party would act immediately upon the breach, and
buy or sell in the market, if there were an available market. Where the plaintiff does not
accept the defendant‟s anticipatory breach of contract, there is no duty on the plaintiff to
mitigate his loss before the actual breach on the due date for performance.
Another instance of mitigation arises where the defendant in breach of contract
refuses to accept goods which he has agreed to buy, but the plaintiff is able to sell the
foods at the same price to a third person: if the state of the market is such that demand
exceeds supply, so that the plaintiff could always find a purchaser for every article he
could get from the manufacturer, he is entitled only to nominal damages from the
defendant (and not his loss of profit on the repudiated sale) since he sold the same
number of articles and made the same number of fixed profits as he would have done if
the defendant had duly performed his contract."
x. Explanation to Section 73 of the 1872 Act grants statutory recognition to the
common law principle of mitigation of damages. The same could not have
been glossed over by the learned Arbitral Tribunal.
xi. The judgment of the Hon'ble Supreme Court in the case of M. Lachia Setty
& Sons Limited vs. Coffee Board, Bangalore7 was relied on to impress
upon the Court that the principle of mitigation or minimization of loss must
be borne in mind by the Court while awarding damages.
xii. Three English authorities namely British Westinghouse Electric and
Manufacturing Company Limited vs. Underground Electric Railways
Company of London Limited8, Payzu, Limited vs. Saunders9 and Charter
vs. Sullivan10 were also cited to assert that while granting compensation for
loss suffered due to breach of contract, the Court must appreciate the duty
imposed on the claimant to take all reasonable steps to mitigate the loss
caused by such breach.
7 (1980) 4 SCC 636
8 1912 A.C.673
9 1918 P. 658.
10 [1957] 2 W.L.R 528
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xiii. It was then submitted that it was incumbent upon the respondent to
demonstrate that it had suffered loss even if the MGO clause is taken at face
value. Notwithstanding the MGO clause in the contract, damage must have
been proved and the same could not have been awarded only on the basis of
the clause.
xiv. In terms of Section 74 of the 1872 Act, compensation is payable only upon
loss caused by breach of contract being proved and not otherwise. The
Hon'ble Supreme Court's pronouncement in the case of Kailash Nath
Associates vs. Delhi Development Authority & Another11 was relied on in
support of the said proposition.
xv. The judgment of the Hon'ble Supreme Court in the case of Unibros vs. All
India Radio12 was cited to contend that loss of profit must of necessity be
proved by evidence and there was no other way out. Bharat Cooking Coal
Limited (supra) was also pressed into service to contend that loss must be
shown and proved to have been suffered in order to claim damages.
xvi. The learned Arbitral Tribunal did not consider the CARE Report of October
2014 (marked as Exhibit E-R) and CRISIL Report of February 11, 2014
(marked as Exhibit E-Q) which clearly revealed that the respondent had
gained profits out of the business of CBM gas and there was no semblance of
any loss suffered by the respondent.
xvii. The learned Tribunal failed to appreciate the returns that had been filed by
the respondent before the "Directorate General of Hydrocarbons" (exhibited by
the appellant as Exhibit "E-YYYY") regarding gas produced, gas consumed
11 (2015) 4 SCC 136
12 2023 SCC OnLine SC 1366
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and gas flared up, which were sufficient to prove that the respondent had
suffered no loss at all.
xviii. Referring to the written note of argument submitted on behalf of the
appellant, it was pointed out that the returns i.e. Exhibit "E-YYYY" revealed
that in June 2014 when gas was supplied by the respondent to the appellant
under the GSPA, the respondent had flared up 0.671 CBM gas and that for
the rest of the year 2014 [i.e. from July to December 2014] i.e. post
termination of GSPA when gas was not being supplied to the appellant, the
quantum of gas flared up by the respondent had not increased but had in
most of the months substantially reduced. A table appearing at page 5 of the
written notes on arguments was placed to show that flaring up of gas had
reduced after cancellation of the agreement. The said chart is as follows:-
Month Production Consumption Flare Sale Qty Flare %age
July -14 11.380 1.624 0.198 9.557 1.74%
Aug- 14 11.424 1.673 0.615 9.136 5.38%
Sep - 14 10.042 1.517 0.134 8.391 1.33%
Oct- 14 8.950 1.482 0.557 6.911 6.22%
Nov- 14 9.648 1.501 0.307 7.840 3.18%
Dec -14 10.926 1.628 0.095 9.203 0.87%
xix. The observations of the learned Arbitral Tribunal in paragraph 215 of the
award were impeached by asserting that the learned Tribunal had wrongly
held that the appellant's contention that the respondent had not suffered any
loss had been raised for the first time only in the written notes, the appellant
had neither referred to nor disclosed the aforesaid material (i.e. returns that
had been filed by the respondent before the "Directorate General of
Hydrocarbons") in its statement of defense (hereafter "SOD").
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xx. Referring to Section 23 of the 1996 Act, it was submitted that the said
provision does not mandate pleading evidence in the SOD. It was submitted
that a pleading that no loss was suffered by the respondent was already there
in the SOD and the same sufficiently entitled the appellant to lead evidence in
support thereof.
xxi. The affidavits of evidence and cross-examination of witnesses were placed in
order to demonstrate that there was ample evidence led by the appellant to
the effect that no loss had actually been suffered by the respondent. It was
then submitted that if there was no pleading at all, the evidence could not
have been permitted to be led at all and further that if evidence had been
permitted to be led the same ought to have been considered. Answers to
question nos. 218 to 223 and 225 to 226 and also 348 in cross-examination
of CW1, were placed in support of the contention that there was ample
evidence to establish that the respondent had not suffered any loss.
xxii. Referring to paragraph 213 of the award, it was submitted that the learned
Tribunal wrongly considered paragraph 83 of the appellant's SOD before the
learned Arbitral Tribunal as the one containing pleadings dealing with
paragraphs 48, 52 and 53 of the statement of claim (hereafter "SOC"). It was
contended that the learned Tribunal relied on a wrong paragraph to conclude
that the appellant had not disputed the MGO Bills raised subsequent to the
termination of the GSPA by the appellant. Paragraph 83 of the SOD was
placed to demonstrate that paragraphs 48, 52 and 53 of the SOC had been
dealt with in paragraph 83 of the SOD.
xxiii. Reliance of the learned Arbitral Tribunal on the recording of submission of
the parties by the Competition Commission while treating the same as a
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finding of the Competition Commission was clearly against the fundamental
policy of law.
xxiv. A bare perusal of the order passed by the Competition Commission would
reveal that the portion thereof that has been relied on by the learned Arbitral
Tribunal was merely recording of the submissions made by the parties before
such Commission and the same was not a finding returned by such
Commission.
xxv. A bare perusal of Sections 4, 19 (1), 19(2), 19(3), 19(4), 19(5) and 28 of the
Competition Act, 2002 (hereafter "the 2002 Act") would show that the scopes
of enquiries before the Competition Commission and before the Arbitral
Tribunal were different from each other. In such view of the matter, the
learned Arbitral Tribunal could not have relied on the findings of the
Competition Commission, even if it could be assumed that the recording of
submissions of the Competition Commission was actually findings of the said
Commission.
xxvi. It was urged that in the arbitration proceeding between the parties only the
question of damage was required to be decided and in such view of the
matter, findings, if at all any, were irrelevant for the arbitral proceedings and
the same, therefore, could not have been relied on by the learned Arbitral
Tribunal.
xxvii. Mr. Mitra took us to paragraphs 36 to 41 of the order passed by the
Competition Commission and sought to demonstrate by placing the same
alongside the arbitral award that the submission of the parties before the
Competition Commission has been treated as evidence by the learned Arbitral
Tribunal.
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xxviii. The object and reasons behind enactment of the 2002 Act was also placed in
a bid to point out that the Arbitral Tribunal and the Competition Commission
did not have overlapping jurisdiction.
xxix. Sections 26, 27 and 53A of the 2002 Act were placed and it was submitted
that the learned Arbitral Tribunal was not correct in applying provisions of
Section 61 of the 2002 Act in the award. For such purpose, attention of the
Court was drawn to paragraph 212 of the arbitral award and it was submitted
that even if, the findings of the Competition Commission were taken to be
findings of fact the learned Arbitral Tribunal was not bound by it.
xxx. It was finally submitted that the learned Arbitral Tribunal ought to have
dismissed the claim.
SUBMISSIONS ON BEHALF OF THE RESPONDENT:
5. Mr. Banerji, learned Senior Advocate appearing for the respondent made the
following submissions:-
i. It could not be denied that CBM gas had to be flared up by the respondent.
Even if one proceeded on the assumption that the submissions of the
appellant was correct and less CBM gas was flared up, the same would not
mean that no loss was suffered by the respondent at all.
ii. Clauses 5, 8.1, 11.5 and 15 of the GSPA were placed to demonstrate that the
agreement was perfectly nuanced and that the MGO clause was the result of
a structured agreement negotiated between the parties.
iii. By the letter dated April 18, 2014, the appellant was clearly put on notice
that the existing bank guarantee was due to expire on May 31, 2014 and that
renewal of said bank guarantee was necessary for continuance of supply of
CBM Gas.
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iv. A combined reading of the correspondences between the appellant and
respondent from pages 76 to 78, 114 and 120 to 121 of the paper book would
clearly reveal that the MGO clause was never waived.
v. Referring to the answers to question nos. 96 and 100 put to RW1 (Sri Ashok
Kumar Agarwal) during his cross-examination it was submitted that the
appellant made payment in terms of the MGO clause whenever there was a
fall/shortage in the MGO.
vi. Referring to the answers to question nos. 51 to 65 and 83 to 89 put to RW4
(Sri. Ashish Beriwala) during his cross-examination it was submitted that the
appellant was unwilling to continue with the respondent only because the
appellant had already entered into another agreement with another entity
named Essar Oil and Gas Exploration and Production Limited.
vii. He took us through several portions of the award passed by the learned
Arbitral Tribunal and submitted that all the relevant facts and evidence had
been considered in detail by the learned Arbitral Tribunal before reaching the
ultimate conclusion.
viii. It was submitted that the principle of awarding of damages is that a person
who has suffered due to breach of a contract should be put in the same
position where he would have been if the contract had been properly
performed.
ix. Mr. Banerji submitted that the question is not one of incurring damages by
the respondent but it was one whether the appellant was able to show that
the respondent did not have any CBM gas available for supply. He then
submitted that notwithstanding the profit that the respondent might have
earned, the loss of profit which the respondent could have earned if the
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contract had not been terminated despite availability of CBM gas is also akin
to damages suffered by the respondent.
x. Referring to page 2212 of the paper book, it was submitted that the CRISIL
report pertained to March 2013 and the same was therefore not relevant
evidence. Portions of the CARE report were placed and it was contended that
the same did not help the appellant at all.
xi. Answers to Question nos. 204 and 206 put to RW 4 at pages 3245 and 3246
of the paper book were also placed to show that the CARE and CRISIL reports
were not relevant.
xii. It was further submitted that a forfeiture clause could not be equated to MGO
clause.
xiii. It was next submitted that the Competition Commission had returned a
finding as regards flaring up of 25% of CBM gas and such finding had been
accepted by the appellant. The Competition Commission relied on the report
of the Director General of Hydrocarbons which in turn was based on the
annual reports of the respondent for the years 2015 and 2016.
xiv. Mr. Banerji further argued that the point of mitigation of damages was never
argued before the learned Tribunal.
xv. It was submitted that the MGO clause was a part of agreed bargain and
amount payable under such clause could not have been lost at the instance
of the appellant. It was submitted that in a restricted supply market the MGO
clause was inserted to ensure supply to the appellant and now upon
termination of the contract, the appellant cannot be permitted to walk away
from the MGO clause.
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xvi. On the point that Courts may assess loss of future profits due to wrongful
termination of a contract, the following judgments were cited :-
a. M/s. A.T. Brij Paul Singh & Others vs. State of Gujarat13
b. MSK Projects India (JV) Limited vs. State of Rajasthan & Another14
c. Mohd. Salamatullah & Others vs. Government of Andhra Pradesh15
d. Dwaraka Das vs. State of M.P. & Another16
e. Crest Education (P) Ltd. vs. Career Launcher (I) Limited17
xvii. On the issue that evaluation of quality and sufficiency of evidence is a matter
within the jurisdiction of the Arbitral Tribunal and the same cannot be
interfered with in a Section 34 proceeding, the following judgments were
placed:-
a. Ssangyong Engineering & Construction Company Limited (supra)
b. Atlanta Limited vs. Union of India18
xviii. On the issue of validity and enforceability of the MGO clause, the following
judgments were relied on:-
a. Bihar State Electricity Board, Patna & Others vs. M/s Green Rubber
Industries & Others19
b. Orissa State Electricity Board vs. Orissa Tiles Limited20
c. M & J Polymers Limited vs. Imerys Minerals Limited21
d. Port of Tilbury (London) Limited vs. Stora Enso Transport &
Distribution Limited & Another22
13 (1984) 4 SCC 59
14 (2011) 10 SCC 573
15 (1977) 3 SCC 590
16 (1999) 3 SCC 500
17 2023 SCC OnLine Del 3801
18 (2022) 3 SCC 739
19 (1990) 1 SCC 731
20 1993 Supp (3) SCC 481
21 [2008] EWHC 344 (Comm), decided on February 29, 2008
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e. Universal Resource Corp. vs. Panhandle Eastern Pipe Line Co.23
f. Prenalta Corp. vs. Colorado Interstate Gas Co.24
g. Orient Power Company (Private) Limited vs. Sui Northern Gas
Pipelines Limited25
xix. A Bench decision of this Court in the case of Shaila Bala Ray vs.
Chairman, Darjeeling Municipality26 was cited in support of the contention
that a minimum charge agreed to be payable by the first party to the other in
certain supply contracts ensures flow of interest on the capital outlay of the
other party who has developed the infrastructure in order to supply the
agreed commodity to the first party. The said judgment was considered with
approval by the Hon'ble Supreme Court in the case of Bihar State
Electricity Board, Patna & Others (supra).
xx. In order to demonstrate that the scope of interference is too restricted in an
appeal under Section 37 of the 1996 Act, the following authorities were
pressed:-
a. Somdatt Builders-NCC-NEC(JV) vs. National Highways Authority of
India & Others27
b. Punjab State Civil Supplies Corporation Limited & Another (supra)
c. B.B.M. Enterprise vs. State of West Bengal28
xxi. The following judgments were pressed to assert that while awarding damages,
the Court should attempt to award such sums as would place the sufferer in
the same position as he would have been had the contract been performed:-
22 [2009] All ER (D) 165 (Jan) : [2009] EWCA Civ 16, decided on January 23, 2009
23 813 F. 2d 77 : 1987 U.S. App. LEXIS 3989, decided on March 31, 1987
24 944 F. 2d 677 : 1991 U.S. App. LEXIS 21476, decided on September 04, 1991
25 LEX/LHPK/0294/2019, decided on June 17, 2019
26 Civil Revision No. 757 of 1935, decided on February 10, 1936
27 (2025) 6 SCC 757
28 2025 SCC OnLine Cal 6087
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a. Thompson (W.L.) Ld. vs. Robinson (Gunmakers) Ld.29
b. Union of India & Others vs. Sugauli Sugar Works (P) Limited30
xxii. The judgment of the Hon'ble Supreme Court in the case of Gemini Bay
Transcription Private Limited vs. Integrated Sales Service Limited &
Another31 was cited in support of the proposition that guesstimates and best
judgment assessment of damages were permissible in cases where damages
were to be awarded and that calculation of damages with mathematical
precision was not necessary.
REJOINDER SUBMISSIONS ON BEHALF OF THE APPELLANT:
6. Mr. Mitra rejoined by making the following submissions:-
i. It was incumbent upon the respondent-claimant to lead evidence to
demonstrate that it had suffered damages.
ii. Since there was tell-tale evidence of the respondent having earned profits, it
could not be said that the respondent suffered any loss or damage.
iii. It was reiterated that the mandate of Section 73 of the 1872 Act must of
necessity be followed and that being so it was the duty of the respondent to
mitigate the losses and prove that reasonable steps were taken by the
respondent to mitigate the losses that the respondent is alleged to have
suffered.
iv. A Kerala High Court judgment in the case of S.K.A.R.S.M. Ramanathan
Chettiar vs. National Textile Corporation Ltd., New Delhi & Another32
was also cited to demonstrate that the principle of mitigation of damages has
29 [1955] 2 WLR 185
30 (1976) 3 SCC 32
31 (2022) 1 SCC 753
32 1985 SCC OnLine Ker 34
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been employed by Courts treating it to be a duty on the part of the
plaintiff/claimant to take all reasonable steps to minimize the loss suffered.
v. The judgment of the Hon'ble Supreme Court in the case of Delhi Metro Rail
Corporation Limited vs. Delhi Airport Metro Express Private Limited33
was cited to demonstrate the scope of interference with arbitral awards and to
assert that overlooking or ignoring vital evidence that goes to the root of the
matter would render an award perverse warranting interference under Section
34 of the 1996 Act.
vi. An English authority Lazenby Garages Ltd. vs. Wright34 was pressed to
demonstrate that Thompson (W.L.) Ld. (supra) may not be a panacea for all
cases of damages and that award of damages should be restricted to the
particular loss which was sustained on a particular transaction and nothing
more.
7. Both the parties have attempted to distinguish the judgments cited by each
other.
ANALYSIS & DECISION:
8. We have heard the learned Senior Advocates for the respective parties and
considered the material on record.
9. Before proceeding to answer the issues that may be framed on the basis of the
pleadings and the submissions made by the parties, we deem it necessary to
record that although only three points were urged and argued before us by Mr.
Mitra in his attempt to impeach the order dated September 05, 2024, (with
which we shall be dealing hereafter), the written note of arguments filed on
behalf of the appellant, contains arguments spanning over twenty seven pages
33 (2024) 6 SCC 357
34 1.W.L.R 459
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(less the annexures) on various other points namely "GSPA being vitiated by
fraud", appellant's counter claim and perverse findings of arbitrator as regards
the various issues raised in the counter claim etc., which were never argued in
the Court. We have consciously refrained from dealing with the same since
taking the same into consideration would cause injustice to the other side who
never had the opportunity to counter such arguments.
10. At the outset, we may remind ourselves of the scope of interference in a Section
37 appeal. Punjab State Civil Supplies Corporation Limited & Another
(supra) serves as a useful guidance on the point. The relevant paragraphs
thereof are quoted hereunder:-
"13. In paragraph 11 of Bharat Coking Coal Ltd. v. L.K. Ahuja, it has been observed as
under:
"11. There are limitations upon the scope of interference in awards passed by an
arbitrator. When the arbitrator has applied his mind to the pleadings, the evidence
adduced before him and the terms of the contract, there is no scope for the court to
reappraise the matter as if this were an appeal and even if two views are possible, the
view taken by the arbitrator would prevail. So long as an award made by an arbitrator
can be said to be one by a reasonable person no interference is called for. However, in
cases where an arbitrator exceeds the terms of the agreement or passes an award in
the absence of any evidence, which is apparent on the face of the award, the same
could be set aside."
***********
15. In Dyna Technology Private Limited v. Crompton Greaves Limited, the court
observed as under:
“24. There is no dispute that Section 34 of the Arbitration Act limits a challenge to an
award only on the grounds provided therein or as interpreted by various courts. We
need to be cognizant of the fact that arbitral awards should not be interfered with in a
casual and cavalier manner, unless the court comes to a conclusion that the perversity
of the award goes to the root of the matter without there being a possibility of alternative
interpretation which may sustain the arbitral award. Section 34 is different in its
approach and cannot be equated with a normal appellate jurisdiction. The mandate
under Section 34 is to respect the finality of the arbitral award and the party autonomyPage 21 of 38
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to get their dispute adjudicated by an alternative forum as provided under the law. If the
courts were to interfere with the arbitral award in the usual course on factual aspects,
then the commercial wisdom behind opting for alternate dispute resolution would stand
frustrated.
25. Moreover, umpteen number of judgments of this Court have categorically held
that the courts should not interfere with an award merely because an alternative view
on facts and interpretation of contract exists. The courts need to be cautious and should
defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the
award is implied unless such award portrays perversity unpardonable under Section 34
of the Arbitration Act.”
***********
20. In view of the above position in law on the subject, the scope of the intervention of
the court in arbitral matters is virtually prohibited, if not absolutely barred and that the
interference is confined only to the extent envisaged under Section 34 of the Act. The
appellate power of Section 37 of the Act is limited within the domain of Section 34 of the
Act. It is exercisable only to find out if the court, exercising power under Section 34 of the
Act, has acted within its limits as prescribed thereunder or has exceeded or failed to
exercise the power so conferred. The Appellate Court has no authority of law to consider
the matter in dispute before the arbitral tribunal on merits so as to find out as to whether
the decision of the arbitral tribunal is right or wrong upon reappraisal of evidence as if it is
sitting in an ordinary court of appeal. It is only where the court exercising power under
Section 34 has failed to exercise its jurisdiction vested in it by Section 34 or has travelled
beyond its jurisdiction that the appellate court can step in and set aside the order passed
under Section 34 of the Act. Its power is more akin to that superintendence as is vested in
civil courts while exercising revisionary powers. The arbitral award is not liable to be
interfered unless a case for interference as set out in the earlier part of the decision, is
made out. It cannot be disturbed only for the reason that instead of the view taken by the
arbitral tribunal, the other view which is also a possible view is a better view according to
the appellate court.
21. It must also be remembered that proceedings under Section 34 of the Act are
summary in nature and are not like a full-fledged regular civil suit. Therefore, the scope of
Section 37 of the Act is much more summary in nature and not like an ordinary civil
appeal. The award as such cannot be touched unless it is contrary to the substantive
provision of law; any provision of the Act or the terms of the agreement.”
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11. The contours of our powers under Section 37 of the 1996 Act having thus been
drawn, we may now proceed further. Three issues which may be framed for
determination in the present matter are as follows:-
I. Whether the respondent-claimant has discharged its duty of mitigation of
losses?
II. Whether the respondent has proved that it has suffered damages?
III. Whether the award is perverse for not taking into consideration relevant
evidence?
AS REGARDS ISSUE NO.I:-
12. Although we have framed this issue since Mr. Mitra had urged the point of
failure on the part of the respondent to mitigate the losses, yet, we must record
that in the case at hand the issue has not actually arisen. We say so because
this issue was not actually urged before the learned Arbitral Tribunal. It has not
been demonstrated to us by the appellant that this issue was urged before the
learned Tribunal. In fact what was urged was as to whether the respondent
could at all be said to have suffered any loss in view of the fact that the
respondent had earned profits during the material point of time or the relevant
period. The two aspects are entirely different and may be mutually destructive
as well.
13. If a person earns profits by employing all avenues that he has, he cannot be
said to have failed in mitigating his damages. But, can such earning of profit
alone always lead to the conclusion that there has been no damage at all? The
answer has to be in the negative as there can be situations where a person
could be entitled to more profits than what he has actually earned but has been
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deprived of the further profit element due to the breach of the contract
complained of.
14. A question as regards mitigation of damages is one of fact. It therefore, must of
necessity be urged before the first forum of facts or at least before one of the
forums (fora) of facts, where there are more than one in the hierarchy. We are
dealing with an arbitration proceeding where the arbitrator is the final arbiter of
facts and law as well unless it is vitiated by any of the debilitating grounds
mentioned in Section 34 of the 1996 Act. The scope of interference with an
arbitral award in a Section 34 proceeding is cruelly restricted and the scope of
enquiry in an appeal under Section 37 of the 1996 Act cannot exceed that of the
Section 34 proceeding as already indicated hereinabove.
15. When a point of fact was not urged before the learned Arbitral Tribunal, we at
this stage cannot and should not countenance such argument at all.
16. Furthermore, while it is well settled that the claimant has a duty to mitigate the
damages, it is equally well settled that the burden of proof that the claimant did
not discharge its duty of mitigation of damages lies on the defendant. Such
position was clarified more than six decades back by the decision of a Bench of
this Court in the case of Prafulla Ranjan Sarkar vs. Hindusthan Building
Society Limited35 upon taking note of several English authorities and a
judgment of the Hon’ble Madras High Court on the point. The following
paragraphs of the said judgement are relevant to the context:-
“32. But I need not enter into this discussion at all. The question what is reasonable for
a plaintiff to do in mitigation of damage is not question of law, but one of fact in the
circumstances of each particular case, the burden of proof being upon the
defendant; Halsbury’s Laws of England, 3rd Edition, Vol. 11. Article 476, page 290. In the35 1959 SCC OnLine Cal 55 : AIR 1960 Cal 214
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footnotes under these observations have been cited the cases of Clayton-Greene v. De
Courville, (1920) 36 TLR 790 at page 791 where the question was whether an actor should
have mitigated the damages for breach of an agreement to take a leading part in a play by
accepting the part of another character in the same play and Waterhouse v. H. Lange Bell
and Co. Ltd., (1952) 1 LI Rep. 140 where damages were reduced because the plaintiff
failed to mitigate by taking an alternative suitable employment.
33. On the burden of proof has been cited in these footnotes the case of James Finlay
and Co. v. N.V. Kwik, (1928) 2 KB 604. In this case it was held that for breach of a contract
for sale of goods a plaintiff‟s duty to minimise damage was limited to doing what was
reasonable in all the facts of the case, the onus of showing a breach of that duty being on
the defendant. This decision of Wright was affirmed by the Court of Appeal (see 1929-1
K.B. 400).
34. I find these principles were applied by Leach, C.J. (Laskshmana Rao, J. agreeing
with him) in Sundaram v. Chokalingam, AIR 1938 Mad 672. At page 674 Leach, C.J. has
observed that
“in a case like the present where the employment was for a definite period, the
employer is bound to pay the stipulated salary unless he shows that the discharged
servant had an opportunity of other employment but he refused to avail himself of it. In
other words, the principle that a person must do what he can to mitigate damages
applies to a contract of service just as it applies to an ordinary commercial contract.”
35. The learned Chief Justice then quoted the passage in Halsbury referred to above
and went on to say that the authority for the statement that the burden of proof was upon
the defendant was to be found in Roper v. Johnson, (1873) 8 C.P. 167 and (1928) K.B. 604.
36. In the present case the defendant has adduced no evidence at all to show what the
plaintiff should have done to mitigate the damages. Indeed questions Nos. 530 to 536 were
put to the plaintiff in cross-examination but he was not pressed to give particulars of the
efforts that he had made to find another job. In these circumstances it appears to me that
the plaintiff is entitled to nine months’ salary in lieu of notice aggregating to Rs.6750/-
without any deductions therefrom.”
[Emphasis supplied]
17. Even otherwise the situation is not different in the case at hand, from the one
mentioned in paragraph 36 of Prafulla Ranjan Sarkar (supra) inasmuch as
here too, the appellant before us (i.e. the respondent in the arbitration
proceeding) has adduced no evidence at all to show what the plaintiff should
have done to mitigate the damages.
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18. In view of the reasons cited hereinabove the ratio of the judgment of the Hon’ble
Supreme Court in the case of M. Lachia Setty & Sons Limited (supra); the
three English authorities British Westinghouse Electric and Manufacturing
Company Limited (supra), Payzu, Limited (supra) and Charter (supra) and
the judgment of the Hon’ble Kerala High Court in the case of S.K.A.R.S.M.
Ramanathan Chettiar (supra) cannot be applied to the facts of the present
case.
19. Issue no.I thus stands answered against the appellant.
AS REGARDS ISSUE NO.II:-
20. There is unimpeachable evidence on record to suggest that the respondent has
had to flare up CBM gas. In fact the e-mail sent to the appellant’s employee on
the employee’s application under the Right to Information Act, 2005, which have
been relied on by the appellant as Exhibit “E-YYYY” (page 3024 to 3027 of the
paper book) clearly reveals that there has been flaring up of CBM gas. In fact the
learned Arbitral Tribunal too has taken note of the fact that as per the chart
produced by the appellant itself before the learned Arbitral Tribunal, there was
flaring up. There is a clear factual finding to that effect in paragraph 215 of the
award where the learned Tribunal says “Even then it shows from the chart
produced by the Respondent, that there is flaring up”. The clamour of the
appellant was never to the effect that there was no flaring up at all. It was rather
to the effect that the flaring up was less and therefore the respondent should
not be entitled to damages or only to the extent of flaring up.
21. Lazenby Garages Ltd. (supra) had been cited to assert that award of damages
should be restricted to the particular loss which was sustained on a particular
transaction and nothing more. The suggestion implicit in such argument was
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that damages could not have been more than the loss suffered by flaring up of
less gas. The argument arrests attention more in novelty than difficulty in
dealing with it in the facts of the present case.
22. It cannot be lost sight of that CBM gas is not an ordinary commodity and there
is no spot market for such gas. Such fact has been clearly spelt out by the
Competition Commission in paragraph 67 of its order dated July 16, 2017. We
are mindful of the vehement objection of the appellant that the learned Tribunal
has treated recording of submissions by the Competition Commission as its
findings as regards flaring up of CBM gas with which we shall deal a little later.
However, at the moment we hasten to clarify that the observations of the
Competition Commission in paragraph 67 of its order are not recording of
submissions but factual findings. The relevant portion thereof is quoted
hereinbelow:-
“67. On a careful consideration of the mater, it may be observed that production of CBM
gas production is a continuous process that starts once a well is dug and stops only when
the well goes dry. GEECL plans its production based on contracted quantity agreed with
customers on a long term basis. Once the CBM is produced, it cannot be stored and if the
customer fails to off-take the contracted quantity, GEECL has no option but to flare up the
gas. There is no spot market for CBM gas where GEECL can sell the gas which is not
consumed by a customer. MGO liability is a standard clause across most long term supply
contracts of producers and is intended to cover the risk of the seller in committing to sell a
fixed quantity on a long term basis to assure the buyer firm of supply of gas………..”
23. Flaring up of CBM gas is restricted to gas that was produced but could not be
sold due to lack of buyers. There is nothing on record to suggest that there was
lack of producing capability or capacity by reason whereof no further CBM gas
could have been produced by the respondent. In this connection, the following
answers given by the respondent’s witness CW-1 (Mr. Monik Parmar) to
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Question Nos. 218 and 219 (at page 84 of the written notes of argument
submitted by the appellant) during his cross examination may be noticed:-
“218. Is the gas production by the claimant in excess of what the claimant‟s clients
required for supply? / I had already mentioned that CBM production is a continuous
process. CBM gas once produced cannot be stored and if not consumed is to be flared.
Claimant tries for increase in production on continuous basis that increased in production
wells.
219. Why does the claimant, according to you, continuously strive to increase the
production of CBM gas? Is it because the demand for supply of CBM gas has been
increasing continuously? / Claimant needs to adhere to the commitment that it made to the
Government as well as contracted customers.”
[Emphasis supplied]
24. It is nobody’s case that the respondent lacked the ability or capacity to supply
CBM gas to the appellant. It is rather the case of the respondent that it was
ready and willing to supply CBM gas to the appellant but could not do so due to
termination of the contract. In fact the CRISIL report of February 2014 relied on
by the appellant clearly evinces that at the relevant point of time, the
respondent had the capacity to increase its production and supply CBM gas
more than earlier. The following extract of the said report which was marked as
Exhibit E-Q (at page 33 of the written notes of argument submitted by the
appellant) deserves notice:-
“GEECL‟s operating income grew 61% CAGR over FY11-13 to Rs. 1.6bn, primarily due to
increase in production volume, given by an increase in the number of producing wells. For
FY13 as a whole, the EBITDA margin improved to 64% from 5% in FY11 as increase in
revenues absorbed fixed costs. PAT turned positive for the first time at Rs.358mn on the
back of strong growth in EBITDA, despite an increase in depreciation charge and interest
cost. RoE for the year was low at 12.9% as more than 50% of the wells drilled are in the
dewatering stage and thus, not producing gas. CRISIL Research expects RoEs to improve
going ahead on the back of increase in the ramp-up of production from existing wells as
well as increase in the number of producing wells.”
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25. This reveals that at a point of time when the report was prepared (i.e. in and
around February 2014) 50% of the CBM gas wells were not producing gas since
they were at de-watering stage which means the same were to start producing
gas once they were dewatered. At that point of time the GSPA was alive and the
respondent was being supplied CBM gas. Seen in such context it cannot be said
that the respondent could not have had the ability or capacity to supply CBM
gas to the appellant later on when its capacity would get enhanced upon the
said 50% of the CBM gas wells, which were at the dewatering stage earlier, got
dewatered.
26. While we are mindful of the legal position that while exercising our power under
Section 37 of the 1996 Act, we cannot re-appreciate evidence, we hasten to add
that the above exercise was not one to re-appreciate evidence but to find out as
to whether there was any evidence to support the ultimate conclusion of the
learned Arbitral Tribunal and we find there indeed is some evidence to support
the ultimate conclusion.
27. The MGO clause clearly indicates that “Subject to clause 8.3 & 9, in case the
SELLER is ready and able to supply the Contracted Quantity of GAS but BUYER
purchases GAS less than the k% of the Contracted Quantity or on account of
stoppage of supply by the SELLER as prescribed under clause 4.2 results in
purchase of Gas less than k%, then BUYER shall have to pay to the SELLER for
his quarterly minimum quantity (hereinafter termed as „Minimum- Guaranteed
Offtake i.e. MGO‟) of k% of contracted quantity.
28. In such view of the matter, it cannot be said that the respondent would not be
entitled to any compensation since it did not suffer loss or since it earned
profits.
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29. There is yet another way to look at into the matter. As instructed by the
authoritative dictum of the Hon’ble Supreme Court in the case of State
Electricity Board, Patna & Others (supra) while approving the judgment of
this Court in the case of Shaila Bala Ray (supra) cited by the respondent,
clauses akin to the MGO clause are meant to reimburse the costs regularly
incurred by the supplier for maintaining the supply infrastructure and it is not
actually in the nature of a liquidated damages clause in a contract. The relevant
paragraph of State Electricity Board, Patna & Others (supra) may be noticed
in this context:-
“18. In Saila Bala Roy v. Chairman, Darjeeling Municipality [AIR 1936 Cal 265 : 40
CWN 789 : 162 IC 811] , it was held by a learned Single Judge that the minimum charge
was not really a charge which had for its basis the consumption of electric energy. It was
really based on the principle that every consumer’s installation involved the licensee in
certain amount of capital expenditure in plant and mains on which he was to have a
reasonable return. He could get a return when the energy was actually consumed, in the
shape of payments of energy consumed. When no such energy was consumed by the
consumer, or a very small amount was consumed in a longer period, the licensee was
allowed to charge minimum charges by his licence, but those minimum charges were really
interest on his capital outlay incurred for the particular consumer.”
30. Viewed in the light of the judgment of the Hon’ble Supreme Court, it would be at
once noticed that the Hon’ble Single Judge has while upholding the award
followed the same reasoning. The relevant paragraphs of the judgment of the
Hon’ble Single Judge are quoted hereinbelow:-
“85. The premise of the MGO Clause is not an actual occasion of loss suffered by the
supplier. It is a prevalent practice in such long-term contracts for supply of energy, by way
of electricity, gas, etc. to introduce a minimum consumption clause, which is in the nature of
an assurance to the supplier that the huge investment in grid and other infrastructure for
supply to consumers, which is undertaken by such supplier, is justified by long-term
supply. Premature termination would not only entail loss of the minimum guaranteedPage 30 of 38
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amount, which is the MGO value in the present case, but also may be detrimental to the
maintenance of the supply grid itself.
86. Also, it is irrelevant whether the same amount of gas as consumed before by SRMB
was flared up even after termination of the contract with SRMB. As long as there was even
a small amount of flare-up, it would indicate that at least some of the gas produced by the
supplier is not used up. It is not a relevant question whether the gas earmarked for the
consumer (SRMB) was being supplied to some other consumer, since supply to one
consumer is not mutually exclusive with supply to some other. It may very well be that the
supplier enhances its infrastructure and/or on the basis of the same infrastructure caters
to more consumers, thereby increasing its earnings. Even if SRMB was continued to be
supplied with gas, it was open for the claimant/supplier to increase its supply and/or to
maintain its previous supply and go on supplying gas from its network/grid to other new
consumers, which would fetch more profits 27 to the supplier. There was no exclusivity
clause in the agreement between the parties, restricting supply only to SRMB. Hence, even
if the claimant went on supplying to others over and above the quantity supplied to SRMB,
it would have earned more profit, to which there is no bar.
87. Thus, as long as there is even a wee bit of flare-up of gases, there is a wastage of
gas produced by the supplier and, consequentially, there cannot be any dilution of the
MGO loss suffered by the supplier. Theoretically, after the termination, the supplier might
have started supply to new consumers. Even then, as long as the entire amount of
produced gas was not exhausted, the supplier would continue to suffer loss due to
termination of the contract for the particular amount of gas which was to be supplied to
SRMB. It is not that the gas earmarked for SRMB is being supplied to others. The claimant
is a producer of gases and can very well supply to many other consumers than SRMB.
88. Hence, the argument of SRMB linking the quantum of post termination flare-up of
gases to absence of loss is irrational and not acceptable. Even if the flare-up remained the
same, the supplier suffers loss to the extent of the MGO amount as long as there is flareup
of any amount.
89. Hence, such argument of SRMB/petitioner is specious but not acceptable.
90. The concept of MGO, in any event, is to provide certainty to the supplier and to
ensure that the grid infrastructure installed on the basis of a long-term supply agreement is
utilised to the full, which would justify the infrastructure and maintenance expenses of the
said supply grid as well. It acts as a long-term insurance to cover the infrastructure and
allied expenses and does not necessarily require proof of actual future loss as such. The
rudiments of such future loss are embedded in the MGO Clause of the agreement itself,
which has been wrongfully terminated by the present petitioner. 91. Hence, on a
comprehensive perusal of the impugned award, I am unable to find any infirmity or
illegality in the same.”
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31. The Hon’ble Single Judge has taken a plausible view and we find no reason to
differ at all.
32. There was a lot of dissatisfaction in the appellant on the learned Arbitral
Tribunal having accepted certain recordings by the Competition Commission in
its order by treating them as the findings of fact by the Competition
Commission.
33. We agree with the appellant on such score that the Competition Commission
has recorded the submissions of the respondent at paragraph 41 of its order
dated February 16, 2017 and has not returned any finding as regards flaring up
but we still hold that the award would not be vitiated by the acceptance of such
recording of the Competition Commission as its findings. The reason therefor is
that it stands admitted by the appellant as well that there has been flaring up of
CBM gas. The finding of the Competition Commission was relevant only for such
purpose. In view of the reasons given hereinabove, the quantum or percentage of
gas that was flared up hardly matters.
34. Even otherwise, it is well settled that the question as regards awarding of
damages must be decided on the basis of the terms of the contract. If the
contractual terms clearly indicate that the stipulation as regards liquidated
damages is not in the nature of penalty but a genuine pre-estimate of loss,
actual loss need not be proved. In the instant case, loss is clear and apparent.
In this context the observations of the Hon’ble Supreme Court in the case of Oil
& Natural Gas Corporation Limited vs. Saw Pipes Limited36 may be
noticed:-
“68. From the aforesaid discussions, it can be held that:
36 (2003) 5 SCC 705
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(1) Terms of the contract are required to be taken into consideration before arriving at
the conclusion whether the party claiming damages is entitled to the same.
(2) If the terms are clear and unambiguous stipulating the liquidated damages in case of
the breach of the contract unless it is held that such estimate of damages/compensation is
unreasonable or is by way of penalty, party who has committed the breach is required to
pay such compensation and that is what is provided in Section 73 of the Contract Act.
(3) Section 74 is to be read along with Section 73 and, therefore, in every case of breach
of contract, the person aggrieved by the breach is not required to prove actual loss or
damage suffered by him before he can claim a decree. The court is competent to award
reasonable compensation in case of breach even if no actual damage is proved to have
been suffered in consequence of the breach of a contract.
(4) In some contracts, it would be impossible for the court to assess the compensation
arising from breach and if the compensation contemplated is not by way of penalty or
unreasonable, the court can award the same if it is genuine pre-estimate by the parties as
the measure of reasonable compensation.”
[Emphasis supplied]
35. The judgments of the Hon’ble Supreme Court in the case of Kailash Nath
Associates (supra), Unibros (supra) and Bharat Cooking Coal Limited (supra)
cannot come to the aid of the appellant in the case at hand inasmuch as firstly
there is clear proof of damage or loss suffered and secondly, the MGO clause is
one which entitles the respondent to a certain sum by way of reimbursement of
the costs regularly incurred by the respondent for maintaining the supply
infrastructure. It may be recorded that Mr. Mitra had sought to assert that the
principle applied by the Hon’ble Supreme Court in the case of State Electricity
Board, Patna & Others (supra) and this Court in the case of Shaila Bala Ray
(supra) would not apply to the instant case inasmuch as here, the learned
Arbitral Tribunal has allowed the respondent to take away the pipes and
infrastructure set up for supplying CBM gas to the appellant. We are not
impressed with such argument for the simple reason that the damages awarded
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by the learned Arbitral Tribunal are upto a date prior to the date of removal of
such infrastructure.
36. Issue no.II thus stands answered against the appellant.
AS REGARDS ISSUE NO.III:-
37. The main thrust of the appellant’s argument was in support of the ground that
the award was perverse and that the same had been passed in ignorance of vital
evidence like the CARE and CRISIL Reports.
38. We have analysed the award and find that indeed the learned Tribunal has not
discussed the Reports despite the same being exhibited in evidence before it.
Such evidence has indeed been ignored. The question now would be as to
whether such glossing over of evidence is fatal to the award?
39. The answer to such question would depend on whether the CARE and CRISIL
Reports constitute vital evidence that go to the root of the matter or at least
relevant evidence that would have led to a contrary fate of the arbitral lis.
40. As regards the CARE report, the same was marked as Exhibit E-R and it dates
back to October 2014. The same reveals as follows:-
“Credit Risk Assessment
Comfortable financial risk profile led by higher gas production and sales
The financial risk profile of the company has witnessed significant improvement during
FY14.
The total income increased by approximately 30% during FY14 on account of 25%
increase in volume of gas sold (94.38 MMSCM against 75.75 MMSCM during FY13) and
better sales realization (Rs.21,54/SCM as against Rs.20.85/SCM in FY13; refers to period
April 01 to March 31). The realization improved primarily on account of favourable demand-
supply scenario, PBILDT margin witnessed improvement of 500 bps during FY14 (to
69,11% as against 63.98% during FY13) on account of increasing prating income absorbing
higher capital cost. GEECL’s PAT turned positive in FY13 and has doubled since then.
During FY14 company reported a PAT of Rs.77,61 crore, leading to a PAT margin of 38.09%
as against a PAT of Rs.38.96 crore and PAT margin of 24.63% during FY13, During Q1-Page 34 of 38
2026:CHC-OS:122-DB
FY15 the company reported a PAT of Rs.23.87 crore on a total operating income of
Rs.58.05 crore as against a PAT of R5,11,97 crore on a total operating income of Rs.41.97
crore during Q1-FY14.”
41. The same reveals that the respondent clocked substantial profits during the FY
2013 – 2014 and first quarter of FY 2015.
42. The CRISIL Report which was marked as Exhibit E-Q and which is dated
February 11, 2014 similarly shows that the respondent earned profits during FY
2011 to 2014.
43. To be precise both are strong indicators of the fact that the respondent had
earned profits out of its business of selling CBM gas. However, the question
which was posed before the learned Arbitral Tribunal was not as to whether the
respondent had made profits from its CBM gas business or not but as to
whether the breach of the GSPA by the appellant had caused loss to the
respondent or not. Such question has been answered by the learned Arbitral
Tribunal based on the factual finding that the respondent has had to flare up
CBM gas inasmuch as the same could be of no use to the respondent or for that
matter for anybody as it could not be stored after being produced. In such
context the finding of the Competition Commission in paragraph 67 of its order
dated February 16, 2017 and the answers to Question Nos. 218 to 223 put to
the CW-1 (Mr. Monik Parmar) during cross examinations are relevant.
44. The same prove the fact that the respondent had indeed suffered loss. In such view of
the matter non-consideration of the CARE and CRISIL Reports cannot be said to have
vitiated the award so as to call for any interference with the same. The ratio of Delhi
Metro Rail Corporation Limited (supra) would therefore not apply to the facts of the
present case inasmuch as it cannot be said that any vital evidence has been ignored by
the learned Arbitral Tribunal while passing the award.
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45. Thus Issue no.III also stands answered against the appellant.
46. As regards the judgments of the Hon’ble Supreme Court in the case of Bharat
Cooking Coal Limited (supra), Associate Builders (supra), Batliboi
Environmental Engineers Limited (supra) and Ssangyong Engineering &
Construction Company Limited (supra) cited by the appellant, the same are
salutary authorities on the scope of Section 34 of the 1996 Act. We have tested
the award within the scope of the provisions of Section 34 of the 1996 Act and
we have found no reason to interfere therewith. To wit, the view of the learned
Arbitral Tribunal is a possible and plausible view and its conclusion can be
supported by the evidence already on record. We draw support from the
following observations of the Hon’ble Supreme Court in the case of Batliboi
Environmental Engineers Limited (supra) in such regard:-
“45. Referring to the third principle in Western Geco, it was explained that the decision
would be irrational and perverse if (a) it is based on no evidence; (b) if the arbitral tribunal
takes into account something irrelevant to the decision which it arrives at; or (c) ignores
vital evidence in arriving at its decision. The standards prescribed in State of Haryana v.
Gopi Nath & Sons (for short, Gopi Nath & Sons) and Kuldeep Singh v. Commissioner of
Police should be applied and relied upon, as good working tests of perversity. In Gopi Nath
& Sons it has been held that apart from the cases where a finding of fact is arrived at by
ignoring or excluding relevant materials or taking into consideration irrelevant material, the
finding is perverse and infirm in law when it outrageously defies logic as to suffer from vice
of irrationality. Kuldeep Singh clarifies that a finding is perverse when it is based on no
evidence or evidence which is thoroughly unreliable and no reasonable person would act
upon it. If there is some evidence which can be acted and can be relied upon, however
compendious it may be, the conclusion should not be treated as perverse. This Court in
Associate Builders emphasised that the public policy test to an arbitral award does not
give jurisdiction to the court to act as a court of appeal and consequently errors of fact
cannot be corrected. Arbitral tribunal is the ultimate master of quality and quantity of
evidence. An award based on little evidence or no evidence, which does not measure up in
quality to a trained legal mind would not be held to be invalid on this score. Every
arbitrator need not necessarily be a person trained in law as a Judge. At times, decisionsPage 36 of 38
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are taken acting on equity and such decisions can be just and fair should not be
overturned under Section 34 of the A&C Act on the ground that the arbitrator‟s approach
was arbitrary or capricious. Referring to the third ground of public policy, justice or
morality, it is observed that these are two different concepts. An award is against justice
when it shocks the conscience of the court, as in an example where the claimant has
restricted his claim but the arbitral tribunal has awarded a higher amount without any
reasonable ground of justification. Morality would necessarily cover agreements that are
illegal and also those which cannot be enforced given the prevailing mores of the day. Here
again interference would be only if something shocks the court‟s conscience. Further,
„patent illegality‟ refers to three sub-heads: (a) contravention of substantive law of India,
which must be restricted and limited such that the illegality must go to the root of the
matter and should not be of a trivial nature. Reference in this regard was made to clause
(a) to Section 28(1) of the A&C Act, which states that the dispute submitted to arbitration
under Part I shall be in accordance with the substantive law for the time being in force. The
second sub-head would be when the arbitrator gives no reasons in the award in
contravention with Section 31(3) of the A&C Act. The third sub-head deals with
contravention of Section 28(3) of the A&C Act which states that the arbitral tribunal shall
decide all cases in accordance with the terms of the contract and shall take into account
the usage of the trade applicable to the transaction. This last sub-head should be
understood with a caveat that the arbitrator has the right to construe and interpret the
terms of the contract in a reasonable manner. Such interpretation should not be a ground to
set aside the award, as the construction of the terms of the contract is finally for the
arbitrator to decide. The award can be only set aside under this sub-head if the arbitrator
construes the award in a way that no fair-minded or reasonable person would do.”
[Emphasis supplied]
CONCLUSION:
47. The learned Arbitral Tribunal has rightly awarded damages taking into
consideration the principles laid down by Kailash Nath Associates (supra) as
well as M/s. A.T. Brij Paul Singh (supra) and the same does not call for any
interference.
48. We have found that the conclusions reached by both the learned Arbitral
Tribunal as well as the Hon’ble Single Judge are plausible and appropriate. In
terms of the law obtaining, both Section 34 and Section 37 Courts would be
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mandatorily required to uphold a plausible view of an Arbitral Tribunal. Apart
from the fact that we are exercising powers under Section 37 Court of the 1996
Act, we must not forget that even otherwise while sitting in appeal against an
order of an Hon’ble Single Judge of this Court even in ordinary appellate
proceedings, the appellate Court would interfere only when the order impugned
is clearly wrong and not when it is not right. In the case at hand, we do not find
any reason to disagree with the Hon’ble Single Judge even to the slightest
degree.
49. For all the reasons aforesaid, we are unable to find any reason to interfere with
the order impugned. AO-COM 30 of 2024 stands dismissed. There will be no
order as to costs.
50. Urgent photostat certified copy of this judgment, if applied for, be supplied to
the parties upon compliance of all formalities.
I agree.
(Arijit Banerjee, J.) (Om Narayan Rai, J.)
Later:
51. After judgment is delivered in Court, learned Advocate for the appellant prays
for stay of operation of the judgment and order. Such prayer is considered and
refused.
(Arijit Banerjee, J.) (Om Narayan Rai, J.)
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