28 Jul 2121

The agreement cannot be made liable to perform something for which it has not be entered into a contract and the role of the arbitrator is to arbitrate with in the terms of the contract - Supreme Court of India

Case : PSA SICAL Terminals Pvt Ltd. v. The Board of Trustees of V.O. Chidambranar Port Trust Tuticorn and Others Civil Appeal Nos. 3699-3700 of 2018

Court : Supreme Court of India

Bench : Justice B. R. Gavai

Decided on : 28 Jul 2121

Relevant Statutes

Sections 9 and 34 of Arbitration and Conciliation Act, 1996

Brief Facts and Procedural History

1. Respondent No 1 was the board of trustees who issued a global tender on 9th April 1997 and invites the bids for development of the Berth and for operating and maintenance on a transfer basis.

2. The Appellant PSA SICAL Terminals Pvt Ltd submitted its bid on 24th October 1997 which was accepted and a letter of intent was issued on 29th January 1998 and also it was followed by the Licensee Agreement dated 15th July 1998. The Tariff Authority for Major ports issued guidelines. The SICAL submitted its tariff proposal including royalty as annulment of cost which was further approved by the TAMP’s order. Afterwards, SICAL submitted another proposal for review in tariff as an increase in royalty to be paid as an element of cost. TAMP by its order dated 20th September 2002, rejected the proposal of SICAL.

3. SICAL filed Writ Petition Nos. 4063740639 of 2002 before the Madras High Court for quashing the above order. Further, the Madras High Court passed an order dated 8th November 2002 and passed in favour of SICAL and stayed the TAMP order. On 31st March 2005, TAMP issued the revised guidelines which disallow the royalty as an element of cost. On   17th August   2005,   a   Memorandum of   Compromise was filed before the Court where SICAL submitted a proposal to Ministry relating to the matter of royalty and also requested to amend the Licensee Agreement to incorporate the revenue sharing method and incidental changes.

4. On 27th October 2006, TPT refused to consider SICAL’s application for amendment of the license agreement on the ground that issues that were raised were pending before the Madras High Court. But Madras High Court held that the above consideration had nothing to do with the pendency and directed the TAMP to pass a fresh order after obtaining the necessary proposal form SICAL and after according the sufficient opportunity including personal hearing, The said orders were challenged by the TAMP which is pending an appeal filed by SICAL is also pending before the Court.

5. Later. The SICLA addressed a letter to TPT and raised an issue on the ground of change in law and also prayed for shifting to a revenue-sharing model. SICAL moved a petition under Section 9 of Arbitration and Conciliation Act, 1996 before the District Judge and further they granted an interim order restraining from demanding any royalty at an escalated rate. SICAL filed its Statement of Claim and TAMP filed its counter statement to which a rejoinder was filed by the SICAL TPT filed its reply to the rejoinder in August 2013.   The Arbitral Tribunal passed the award in favour of SICAL and held that there was a change in law and also directed a conversion from royalty to revenue share model and this order was challenged by TPT under Section 34 of Arbitration and Conciliation Act, 1996 before the Madras High Court. SICAL challenged the jurisdiction to adjudicate the petition which was filed above. Further, the Madras High Court held that this petition is not maintainable lastly. TPT filed another appeal which was allowed vide which the award of the Arbitral Tribunal and order passed by District Court came to set aside. SICAL has approached the court by present appeals.

The Issues of the Case

Whether the High Court has rightly set aside the order which was passed?

The Observations of the Court

The Honourable Supreme Court Referred one judgment Associate Builders vs. Delhi Development  Authority, 2015 (3) SCC 49, It was observed that the application under Section 38 of the Arbitration Act, 1996 The Court is not expected to act as an appellate Court and re-appreciate the evidence. The Honourable Supreme Court observed that an award can be set aside on the ground of patent illegality which is appearing on the face of the award, but re-appreciation of evidence will not be permitted on the said ground.

2. The Honourable Supreme Court observed that the documents themselves provide the rates to be collected by the Licensee from users shall not exceed the maximum rates. The tariff will be fixed by the TAMP and the licensee is free to fix the tariff at a lower rate than what is fixed by the Authority and the licensee has to follow rules and regulations which are stipulated by TAMP regarding fixation of tariff. The Honourable High Court observed that the licensee shall pay to the licensor royalty which will be calculated on the basis of minimum guaranteed traffic royalty.

3. The Honourable Supreme Court observed that even the 1998 Guidelines do not mention that the royalty can be factored in the cost while determining the tariff. The Honourable Supreme Court observed that the 1999 TAMP order should not be interpreted to amount to any implicit approval of royalty related issues and royalty was permitted to be factored in cost only on account of TPT’s support to the proposal submitted by SICAL and the Arbitral Tribunal has totally failed to take into this consideration and the finding of the Arbitral Tribunal was based on no evidence.

4. The Honourable Supreme Court observed that there was a change in the law in 2003 and 2005 is based on without taking into consideration of relevant evidence. The Honourable Supreme Court observed that A Contract entered between the parties cannot be substituted unilaterally without the consent of the parties but the award has created a new contract for the parties by the unilateral intention of SICAL as it is against the intention of TPT.

5. The Honourable Supreme court referred to another judgment i.eSsangYong Engineering and Construction Company Limited, 2019 (15) SCC 131, It was held that the above agreement is contrary to the principle of fundamental principles of justice and the agreement cannot be made liable to perform something for which it has not been entered into a contract. The Honourable Supreme Court referred to another judgment Bharat Coking Coal Ltd. vs. Annapurna Construction 26(2003) 8 SCC 154, It was held that the role of the arbitrator is to arbitrate within the terms of the contract. The Honourable Supreme court observed that the High Court has rightly set aside the judgment.

The Decision Held by the Court

The Honourable Supreme Court dismissed the appeals.

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